Question from an IIABNY member: A client of ours incurred damage on a loaner car that was provided to them while their car was in for service. We filed a claim with their company. The company paid the claim less a deductible of $500 which is the physical damage deductible on their policy. They have a Personal Auto Policy.
1. Does a loaner car qualify under the New York rental car endorsement? If so, does a deductible apply?
2. If not, wouldn’t coverage apply under Property Damage Liability, which does not have a deductible?
We had a similar claim about a year ago with another client that was insured with a different company and they paid the claim without a deductible. I spoke to someone at the first company and they said that is how they handle these claims. Could there be a loophole where loaner cars don’t fall under the New York rental endorsement? If the insured did not have physical damage coverage, wouldn’t the company be obligated to pay under Property Damage Liability?
Answer: The Rental Vehicle Coverage Endorsement – New York applies to “rental vehicles,” which the endorsement defines as:
… a motor vehicle of the private passenger or station wagon type or a motor vehicle with a pick-up body, a delivery sedan, panel truck or van if the vehicle is:
1. Not used for transporting persons or property for hire; and
2. Owned by a person engaged in the business of renting or leasing vehicles, rented or leased without a driver to persons other than the owner, and is registered in the name of such owner.
In your insured’s case, the vehicle was owned by someone who is in the auto repair business, not the auto rental or leasing business. Therefore, I don’t think this fits within the definition of rental vehicle, so the endorsement would not apply. If it had applied, there would have been no deductible.
The Liability Coverage under the Personal Auto Policy should apply to this loss, assuming that the insured has the equivalent of the ISO PAP as endorsed by PP 01 79 04 09, Amendment of Policy Provisions – New York. The relevant exclusion states:
We do not provide Liability Coverage for any "insured": …
3. For "property damage" to property:
a. Rented to;
b. Used by; or
c. In the care of:
This Exclusion (A.3.) does not apply to "property damage":
a. To a residence or private garage;
b. To any vehicle NOT:
(1) Rented to;
(2) Owned by; or
(3) Furnished or available for the regular use of:
you or any "family member", if the vehicle is one of the following types:
(1) Private passenger autos;
(2) "Trailers"; or
(3) Pickups or vans; or
c. Up to $2,000 to any "trailer" not owned by or furnished or available for the regular use of you or any "family member" if liability for such damage is assumed under a written rental contract.
Assuming the loaner vehicle was a private passenger car, pickup or van, then it was a vehicle not rented to, owned by or available for the regular use of the named insured or family member; it was borrowed. Therefore, per paragraph b. in the exception, the exclusion does not apply.
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The first four minutes of this podcast from A.M. Best describe a recent California court decision on the liability of an insurance broker for a misstatement on an application. If you are a New York producer, you're acting as a broker any time you submit an application to an MGA; a wholesale broker; the New York Automobile Insurance Plan; the New York State Insurance Fund; and the New York Property Insurance Underwriting Association. In other words, almost any New York producer reading the blog post acts as a broker at least on occasion. Therefore, you should listen to this. Even though this is not a New York court decision, the lessons from it apply everywhere.
More episodes the Best Day Audio Podcast are available on the A.M. Best Web site.
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Photo by Sebastian Vandrey. Used under a Creative Commons Attribution 2.0 license.
Articles and videos commemorating the one-year anniversary of Super Storm Sandy are all over the news and Internet this week (including today's issue of IIABNY Insider.) The insurance industry paid out an estimated $18.75 billion in insured property losses from the storm that ravaged the east coast a year ago yesterday. I want to talk today about a coverage that gets relatively little attention, and the surprise that some business owners who bought it got after Sandy.
Many businesses and organizations may suffer financial losses if their water, communications or power supplies fail. Usually, such outages are short-term -- a few hours or perhaps a day, at worst -- but a longer term loss of these services spells trouble. Restaurants and grocery stores have to throw out meat and other fresh foods if they lose refrigeration for any appreciable length of time. Lose water supplies and most public buildings have to close due to health considerations. And how many businesses can remain open without telephone service or Internet access?
Sure, some of these can be mitigated. The business location might be cut off from communications, but some employees might have access at home and can work from there. However, that doesn't help a whole lot if you're in a retail business, a medical facility, a museum, or any other operation that depends on foot traffic.
Fortunately, there are some standard commercial property coverage endorsements available to address this problem. ISO endorsement CP 04 17 10 12, Utility Services - Direct Damage and CP 15 45 10 12, Utility Services - Time Element, and CP 04 40 06 07, Spoilage Coverage all provide coverage for losses resulting from loss of power, water, and/or communications arising from a site off-premises. (These endorsements go with the Building and Personal Property Coverage Form, but there are similar versions for the Businessowners Policy, aka "BOP".) The spoilage endorsement covers direct damage to covered property resulting from breakdown or contamination, power outage, or both. If you store perishable food, medicine that must be refrigerated, flowers, or anything else that depends on a controlled climate, you need this endorsement. The utility services endorsements provide direct damage or business income/extra expense coverage for losses resulting from loss of water supply, loss of power supply, and/or loss of communications services. The insured can pick one, two or all three. In addition, the insured has the option to include losses resulting from downed overhead transmission lines (for communications and power.)
Now for the kicker. These endorsements provide coverage if the power outage or other outage was caused by a covered cause of loss. If your Internet access goes down for two weeks because of a fire at the provider's access point, you should have coverage. However, if the outage resulted from an excluded cause of loss, then there is no coverage. Just to pick one at random -- flooding comes to mind.
Sandy, as those who lived through it well know, generated lots and lots of water. Can you see where this is going?
I personally heard from a broker in the New York City area who insures a lot of small restaurants in Manhattan. I gather that most of them were written on BOPs. The broker told me that different insurance carriers were applying the endorsements in different ways. One carrier was applying the same endorsements in different ways for different properties. Apparently, some electrical substations shut down as a pre-emptive measure as the storm approached. Some shut down because flood waters damaged their equipment. Reportedly, electrical arcing caused an explosion at one. So, there were a variety of causes for the shut downs.
A lot of unhappy restaurant owners were denied coverage for spoilage losses because the power outages were allegedly caused by flood. I haven't heard anything on this issue in some months, but I imagine the disputes continue. Many insureds believe they lost power due to the explosion or the pre-emptive shut downs, not because of flooding. Their carriers are interpreting history somewhat differently.
The takeaway from this? First, these are coverage endorsements that every organization should at least consider. It could be that an auto parts wholesaler doesn't need it, and that's fine, but a lot of organizations may, upon examination, find that it's necessary. Second, those who buy it must be absolutely clear on its limitations. It doesn't cover losses from perils like water and earthquake. Further, there is no standard way to buy back coverage for those perils. The National Flood Insurance Program does not cover consequential loss or loss of business income. Perhaps some excess line markets do, but that will require some searching. It's better if insurance buyers know ahead of time what to expect so they don't get coverage surprises at a time when they're already stressed to the breaking point.
I think we're all breathing a sigh of relief that the Atlantic Hurricane season to date has been subdued. However, the events of October 29, 2012 should serve as a reminder that the worst can happen here. The insurance industry was ready last time, but two things are certain: There will be a next time, and we can't be too prepared for it.
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Question from an IIABNY member: Insured rented a truck, sending his employees to sign for it and pick it up. The driver had an accident, damaging the rented vehicle, and didn't report it to his employer. The rental company notified the driver that he is responsible. Insured had non owned and hired coverage on his Business Auto Policy. It took my insured a while to find out about this to report it to the carrier. The carrier is denying the claim for late reporting. Now I know that as of January of 2009 a law was passed in the State of New York that a carrier cannot deny a claim for late reporting unless they can prove jeopardy in their favor. Question to you ? 1. Am I right with this law? 2. In your opinion, does it apply here? 3. Is the carrier denying despite the law, or are they within the law? I've attached the denial letter.
Answer: Unfortunately, I think the carrier is in the right here. There are several issues. Since the denial letter refers to a dispute between the rental company and your client’s employees (and not your client), I’ll address coverage for the employees as insureds. It appears that the rental company is seeking recovery from them, not your client (good for the client, by the way.)
First, you are correct that the law pertaining to late notice of claims changed effective policies issued or delivered on and after Jan. 17, 2009. However, I don’t think it helps your client’s employees here. This is what the law (N.Y. Insurance Law Section 3420) says:
(a) No policy or contract insuring against liability for injury to person, except as provided in subsection (g) of this section [NOTE: That provision relates to supplemental spousal liability], or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors: …
(4) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter.
(5) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection. …
(6) A provision that, with respect to a claim arising out of death or personal injury of any person, if the insurer disclaims liability or denies coverage based upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer's disclaimer or denial based on the failure to provide timely notice, unless within sixty days following such disclaimer or denial, the insured or the insurer: (a) initiates an action to declare the rights of the parties under the insurance policy; and (b) names the injured person or other claimant as a party to the action. …
(c) (2)(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.
(B) Notwithstanding subparagraph (a) of this paragraph, an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.
(C) The insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim.
Let’s take this in pieces. First, a policy that covers liability for bodily injury or property damage must contain a provision stating that late notice of a loss will not invalidate the coverage if it was not reasonably possible for the insured to give notice, and the insured gave notice as soon as possible thereafter. However, your client’s employees knew about the damage immediately. They could have reported it on the spot with a simple cell phone call. Consequently, paragraph (a)(4) gives them no protection.
Second, the policy must contain a provision stating that late notice will not invalidate coverage unless the late notice has prejudiced the insurer. With regard to bodily injury and death only, if the insurer denies the claim for late notice, the injured party may take direct action against the insurer. However, this claim does not involve bodily injury nor death. Therefore, the rental company has no direct right of action against the carrier.
Third, where the carrier denies coverage on the grounds that it was prejudiced due to late notice, and the notice was provided more than two years late, the burden of proof is on the insured to prove that the carrier was not prejudiced. According to the denial letter, the accident occurred on Feb. 25, 2011 and the carrier received notice on May 29, 2013, which is two years, three months and four days later. Again, because this incident involved property damage and not bodily injury, the damage was instantly apparent to all involved. The loss should have been reported within a matter of days. Since more than two years elapsed, your client’s employees have the burden of showing that the carrier was not prejudiced.
Fourth, the carrier's rights were prejudiced by the late notice if its ability to investigate the claim was impaired. I think it’s likely that the damage to the truck was repaired long ago. The mechanics who worked on it, assuming they’re still employed with that repair shop, have worked on hundreds of vehicles since then and may not remember much about this one truck. Since the carrier did not get the chance to examine the vehicle, question reliable witnesses (those with fresh memories) or speak with the mechanics before repairs commenced, I think it is fair to say that its rights were prejudiced.
Based on all of this, I believe that the denial of coverage for late notice is valid.
Further, as the denial letter points out, the policy has an exclusion which states that the insurance does not apply to liability for damage to property in the insured’s care, custody and control. The truck was clearly in the employees’ care, custody and control at the time of the accident, so the exclusion applies to them.
Your client’s Auto Physical Damage Coverage might have applied to this claim if the policy listed symbol 8 (“Hired Autos”) on the dec page for Collision Coverage. However, in my opinion, it is still too late for this coverage to apply, even if your client bought it. That is because the loss conditions in the policy probably have language similar to that in the ISO Business Auto Policy, which states:
c. If there is "loss" to a covered "auto" or its equipment you must also do the following: …
(3) Permit us to inspect the covered "auto" and records proving the "loss" before its repair or disposition.
The insured must permit the carrier to inspect the vehicle before its repair, and that didn’t happen. That alone is legal grounds for the carrier to deny a Collision claim.
To summarize: 1) Liability Coverage does not apply to this loss; 2) even if Liability Coverage did apply, the employees must prove that the carrier's interest was not prejudiced in order to overcome the late notice denial; 3) Collision Coverage does not apply because the employees violated a policy condition. The only possibility of coverage that I see here is if the rental company presses a claim directly against your client, and the client reported the loss immediately when it learned of the loss and, under the theory of separation of insureds, it can be shown that the truck was not in the named insured’s care, custody or control at the time of the accident. Even then, if liability is apportioned between the employees and the employer, the named insured’s share of the loss may be a fraction of the total amount.
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This year's J.D. Power & Associates Small Business Commercial Insurance Study has some pretty positive things to say about the involvement of agents and brokers:
Customer satisfaction is highest among small businesses with 11-50 employees, compared to businesses with four or fewer employees (790 vs. 769, respectively). Higher scores among larger businesses are influenced by agents and brokers spending more time with these key accounts. Agents and brokers are not only interacting with these larger businesses more frequently, but the interactions are also three times more likely to be made in person outside of the agent's office, compared to businesses with four or fewer employees (24% vs. 8%, respectively). Consultation via face-to-face interactions allows insurance agents to understand the customer's needs, provide helpful information regarding risk and tailor insurance products to meet their needs.
"Providing face-to-face consultation, from policy review to helping customers understand price adjustments initiated by the insurer, is crucial for customer retention and satisfaction," said Jeremy Bowler, senior director of the insurance practice at J.D. Power. "Those small business customers who have regular face-to-face contact with their insurance agents are more likely to understand their coverage, its value and the reason for a price adjustment should one occur. These customers are more likely to be satisfied and loyal to the insurance brand than those who don't have regular in-person interactions."
This flies in the face of increased talk of carriers selling directly to small commercial customers. According to J.D. Power, small commercial customers like the active involvement of agents and brokers, face-to-face, outside the agent's office.
Are you concerned about your small commercial customers going direct? If so, are you doing the things described in this study? If not, why not?
Question from an IIABNY member: I insure a married couple whose son is a medical school student in Pennsylvania. He borrowed a car and was involved in an accident. My insureds' carrier is denying the claim on the grounds that he is not an insured because he no longer resides in the parents' household. I disagree; his parents help with his finances. They are concerned because he has a brother who will be starting college soon, and they wonder if he will be covered. What do you think?
Answer: The research I did revealed mix answers. Apparently, courts tend to find that a college student who receives family support and keeps most of his possessions in his parents' home and uses that home as his legal residence qualifes as an insured under the parents' policy. Conversely, they tend to rule that older, self-supporting students who have most of their stuff in their own apartments, are no longer insureds under their parents' policy.
In this particular case, the driver was a student at medical school, which implies that he is older than a typical 18 to 21 year-old college student. Also, I would think that where he lives between school semesters would be relevant – does he return to his parents’ home for an extended period of time (for example, summer), or does he continue to reside in Pennsylvania or another location for internships? Does he intend to return to living in his parents’ home in the near future, or does he intend to begin his career elsewhere?
To summarize, this is a gray area, and the insurance carrier may be correct in its determination. In my own case, I have a 24 year-old son who is a law student in Boston and who comes home for short visits periodically, but he has spent the last two summers in other cities working as an intern, and he has accepted a position elsewhere for after he graduates and passes the bar exam. In his case, I think I’d have a pretty hard time proving that he’s a resident of my household. If your insured’s son is in a similar situation, then the claim denial is probably correct.
With regards to the insureds’ second son who will be going to college, as the above paragraph states, courts tend to rule that such students remain residents of their parents’ household. Things get murkier with graduate school and/or the military. However, I found a 2004 New York trial court decision that discusses the issues pretty thoroughly. The court concluded:
When interpreting a multifaceted term such as "resident" in an insurance policy, it must be construed as would the ordinary person when one purchases and pays for insurance (see Michaels v City of Buffalo, 85 NY2d 754, 757 ). Language such as "while residents of the same household" must be given its "`plain, ordinary, and popularly understood sense'" (Canfield v Peerless Ins. Co., 262 AD2d 934, 934 , lv denied 94 NY2d 757 , quoting Hartford Ins. Co. v Halt, 223 AD2d 204, 212 , lv denied 89 NY2d 813 ). Clearly, the average person would not assume that a child insured under the parent's policy will lose coverage by living off-campus while attending college, any more than a child is deprived coverage under a parent's automobile insurance policy because he has had other residences during military service (see Peckey). Mere physical presence elsewhere is not sufficient to establish an intent by respondent to abandon her mother's home as her residence (see Appleton v Merchants Mut. Ins. Co., 16 AD2d 361 ). The evidence submitted does not support a finding that respondent desired or intended to cease being a resident of her mother's home or that her absence from that home was anything other than transient in nature…
This reinforces the rule that there must be evidence that the child has moved out with no intention to move back in before residency in the parents’ household is forfeited. I imagine that will not be the case with the second son for some time.
The entity formerly known as the New York Health Benefit Exchange announced its new name yesterday - New York State of Health. When you hear that name (and I suspect you'll be hearing it a lot in the near future), know that you're hearing about New York's health insurance exchange.
The exchange also announced that its Web site now as an interactive map that shows which health plans are available in a given county. It also has the legally-required calculator to help individuals figure out how much they qualify for in premium tax credits.
They also unveiled a new video, which I imagine will be coming soon to a TV screen near you. If you want to preview it, here it is.
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Question from an IIABNY member: We have an insured that is taking in three foster children from Family Court. The mother of the children is heading to jail for a year. She is an approved foster home under our county’s social service program. Our insured has a concern that, if something should happen to the children, will she have any coverage (if the mother sues her for negligence). So IF one of the children is injured/dies using the insured’s swimming pool, etc., will her HO policy defend her? We have called our carrier for their input and they said the same thing I did……good question!
Answer: In my opinion, her Homeowners policy will not provide liability coverage if one of the foster children is injured, though at least one New York court has said otherwise. I’ll assume that the insured has the equivalent of the ISO Homeowners 3 policy, HO 00 03 05 11. Section II – Liability Coverages states:
A. Coverage E – Personal Liability
If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:
1. Pay up to our limit of liability for the damages for which an "insured" is legally liable. Damages include prejudgment interest awarded against an "insured"; and
2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. …
The Exclusions section states:
F. Coverage E—Personal Liability
Coverage E does not apply to: …
6. "Bodily injury" to you or an "insured" as defined under Definitions 5.a. or b.
This exclusion also applies to any claim made or suit brought against you or an "insured" to:
a. Repay; or
b. Share damages with;
another person who may be obligated to pay damages because of "bodily injury" to an "insured".
So, the question is, do the foster children fall within the policy’s definition of “insured”? In my opinion, the answer is “yes.” Definition 5.a. states:
5. "Insured" means:
a. You and residents of your household who are:
(1) Your relatives; or
(2) Other persons under the age of 21 and in your care or the care of a resident of your household who is your relative;
The foster children are persons under the age of 21 who are in the care of the named insured, and they would be residing with her. Therefore, in my opinion, they are also insureds, so Exclusion 6 applies.
That said, this is my opinion only. A New York trial court in Seneca County disagreed with me in 1999. The wording in the HO policy was a bit different than that which I quoted above. It doesn’t look like the carrier appealed. Whether a court’s decision would go the same way under a different set of facts is anyone’s guess.
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“Hurricane Sandy revealed just how real storm surge risk is,” commented Dr. Claire Souch, vice president, model solutions at RMS. “Our model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S hurricane that makes landfall, which rises to almost 40 percent along the northeast coast of the United States — this is a risk the market can no longer afford to ignore.”
This warning from RMS should be read and absorbed by everyone in the property-casualty insurance industry. It should also be sobering news for anyone who owns property in coastal areas. In the debate over what damaged a property, wind or water, it appears that water is more likely to be the culprit.
Note Dr. Souch's statement about the northeast U.S. - almost a 40 percent chance that storm surge will cause greater losses than the wind. Parts of New York City, Long Island, and New Jersey are just getting back on their feet after Sandy. And there's a very real possibility that they'll go through it all over again in the near future.
Today is August 8. Tropical Storm Irene hit on August 28, 2011. Clearly, something like this can happen at any time. A flood insurance policy from the National Flood Insurance Program has a 30-day waiting period before coverage applies. Anyone near the coast who has been undecided about whether to buy a flood policy might want to take the leap now.
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This just might be the most frightening movie I've seen in a long time.
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