New York's highest court, the Court of Appeals, has issued some interesting insurance-related decisions in the past several days.
If an employer hires undocumented workers; the workers suffer work-related injuries; and the employer's Workers' Compensation insurer pays benefits to the injured workers; does the employer still have immunity under the Workers' Compensation Law from being sued by the third parties (unless the workers suffered "grave injuries")? The court ruled last Thursday that yes, it does. The employer does not lose immunity under the exclusive remedy doctrine simply because it broke the law by hiring undocumented workers.
Most property insurance policies that provide coverage on a replacement cost basis state that the insurer will pay the actual cash value initially but is not obligated to pay the cost of repair or replacement until the repair or replacement is actually completed. Policies tend to have a deadline for completing repairs, such as two years from the date of the loss. What if the insured makes a good faith effort but runs into problems finishing the repairs during that time frame? Is the insurer off the hook for paying for replacement cost? Nope. The court said that, where it is not reasonably possible to complete the repairs within two years, it's only fair for the insurer to allow more time.
Last year, the court ruled that, if an insurer breaches its duty to defend an insured against a liability claim, it also loses the ability to later deny the claim by citing a policy exclusion. In other words, the court said that an insurer that refuses to defend a claim that it should have defended will have to cover the claim even if the policy excludes coverage. Today, the court reversed that decision.
Score one for an employer, one for an insured, and one for an insurer. It's pretty unusual for the high court to hand down this many insurance-related decisions so close together. Can a decision in the pending insured-broker "special relationship" case be far behind?
What do you think of these decisions? Agree? Disagree? Somewhere in between? Log in and sound off in the comments.
Chris Burand writes over on Big I Virtual University about the ongoing pain in the tuckus that is certificates of insurance, but he puts a spin on it that I had not previously considered:
The changes to certificates have caused widespread carnage, frustration, anger, and virtually every other negative emotion imaginable. One item that is not being discussed much publicly is the difference between agencies following the rules versus agencies that are not following the rules. In particular, the question is whether to issue certificates that violate contracts, copyrights, and regulations. There is no question some agencies are doing so knowingly or, if ignorant, they are living in a deep, dark hole.
Neither companies nor associations nor many regulators (the Wisconsin Department of Insurance is a notable exception and there may be others of which I am not aware) have done much to correct the abusers. The result is that sometimes the agency willing to violate the rules, contracts, and copyrights make sales they would not otherwise make. By being silent on this issue, companies, associations, and some regulators are assisting the irresponsible—and the responsible are paying the price.
As an employee of an association (and one who has blogged about the certificate problem, served on an ACORD working group that deals with certificates, and has taught a continuing education course about them), I must admit that I have never considered my responsbility in all of this. Does IIABNY or IIABA or any state producer association have an ethical obligation to speak out against producers who are contributing to the problem?
And what about producers themselves? Do they have an obligation to speak out against their peers who are ignoring the rules?
I don't have good answers to these questions, but I know I'll be giving them some serious thought. Almost on a daily basis, I hear complaints about certificates of insurance, usually pertaining to some ridiculous demand from a government agency throwing its weight around. The caller complains, I commiserate, and we all hang up feeling morally superior without actually done anything about the problem.
IIABNY strongly supported a bill in 2013 to deal with this problem, but we were unable to get the governor on board. Our efforts in Albany are still in full swing -- we're talking to the Department of Financial Services about regulations, while Sen. James Seward's new certificates bill was approved by the Senate Insurance Committee today. Is that enough? Should IIABNY denounce those who take shortcuts in order to save accounts? Should their peer agents and brokers?
I'm curious to hear what you think. The comments are open.
Graphic by Guudmorning! Used under a Creative Commons Attribution 2.0 license.
This excellent article by Glenn Fencl supplies the answer:
Insurance policies written with deductibles provide that the insurer will pay the defense and indemnity costs in connection with a covered claim, and then charge or bill back the deductible amount to the insured. In other words, the “deductible” is a sum that is subtracted from the insurer’s indemnity and/or defense obligation under the policy. Importantly, the responsibility for the defense and settlement of each claim rests solely with the insurer, and the insurer maintains control over the entire claim process.
Policies written with large self-insured retentions, in contrast, may place responsibility for claims handling, including the investigation, settlement and payment of claims, in the hands of the insured. Under a policy with an SIR, the insured is typically required to pay the defense and other allocated expense costs as well as indemnity payments until the amount of the retention has been exhausted. Once the SIR has been exhausted, the insurer responds to the loss and assumes control of the claim.
Self-insured retentions are distinct from deductibles in at least one important respect: The insured whose coverage is subject to a self-insured retention generally is obligated to retain its own defense counsel. Indeed, in a self-insurance arrangement the claims-handling generally is controlled by the insured, an independent adjusting company, or a primary insurer’s claim department retained by the insured to assist it in claim management. In essence, a self-insured is the primary insurer. Not surprisingly, many insureds that employ self-insurance are major companies or commercial entities, sophisticated in matters of insurance, risk management, and loss control.
Another difference between a deductible and an SIR is that the SIR does not reduce available policy limits, whereas a deductible may reduce policy limits. ...
I learned a lot from reading this article, and I encourage you to read the whole thing on PropertyCasualty360.com.
IIABNY members often call the Research Department with this question. Here are the rules:
In general, an excess line broker may not place a risk with a non-admitted carrier unless she has obtained three declinations from admitted carriers. These carriers must be licensed to write the kind of insurance in question. In addition, she must have reason to believe those carriers might consider writing the type of coverage or class of insurance involved. New York Insurance Regulation 41 lists five criteria on which the broker can base her reason to believe that these carriers were markets. For example, recently writing that type of coverage or class of insurance; advertising; articles in the media; and conversations with other insurance producers are all valid reasons.
New York law allows the Department of Financial Services to waive the declination requirement for certain coverages and classes. The list of these coverages and classes is called the “export list.” A broker is not required to get any declinations prior to placing a risk involving these coverages and classes with a non-admitted carrier. Examples include:
- Vacant commercial property
- Liability coverage for construction contractors
- Liability coverage for horseback riding establishments
It is important to keep in mind an advisory legal opinion the DFS issued in 2003. In the department’s opinion, where an admitted carrier and a non-admitted carrier offer the same coverage but the admitted carrier’s premium is higher, the excess line broker must obtain coverage from the admitted carrier.
More information, including links to relevant New York laws and regulations and the current export list, is available on the Excess & Surplus Lines page in the Member Answer Center of the IIABNY Web site.
Almost four years after the enactment of the Patient Protection and Affordable Care Act, three Senate Republicans have unveiled their own version of a health care reform bill. The measure, introduced Monday by Senators Richard Burr (N.C.), Tom Coburn (Oklahoma) and Orrin Hatch (Utah), contains some similarities to the ACA, but (as one would expect) a number of differences as well.
As with the ACA, low- and middle-income Americans would receive tax subsidies to help them buy insurance. Those who decide not to buy insurance would also face potential financial pain. However, rather than a tax penalty (which is the case under the ACA), the Republican plan would permit insurers to charge them more for pre-existing conditions when they finally do buy coverage. Insurance carriers would not be able to exclude pre-existing conditions or charge more for them for individuals who maintain continuous coverage.
The Republican plan does away with the essential health benefits requirement and the exchanges, and it would permit carriers to charge older plan subscribers more than the ACA allows. It also provides a vastly more limited expansion of Medicaid -- only pregnant women and children living below the poverty line would be newly eligible, whereas the ACA expands eligibility to everyone with incomes below 133 percent of the poverty line.
The Republican plan would get rid of the various taxes that the ACA uses to cover the cost of expanded coverage and replaces them them with a new limitation on the income tax deduction for employer-sponsored coverage. Employers would be able to deduct an amount equal to 65 percent of the premium for the average health insurance plan.
The Congressional Budget Office has not yet scored this proposal (the sponsors just announced it on Monday,) so we don't have an estimate as to how many people would gain coverage under this system and whether it will increase or reduce the federal budget deficit.
For more details, visit:
So, what do you think of this proposal? Is it a good first step? A non-starter? Do you think it would achieve the goal of covering the uninsured? What do you think of individual pieces? My initial reaction is that I don't like repealing the essential health benefits requirement. As with auto insurance, there should be a floor for health insurance coverage, a minimum level that consumers can reasonably expect. Under the old system, it was way to easy for people to believe they had coverage only to find out that their policies didn't cover something like, oh, maternity care.
I'd love to hear your thoughts. Sound off in the comments.
For the last several years, IIABNY has asked New York insurance producers to rate the carriers they represent. We ask respondents to score their carriers on how well they meet these ideals:
- Underwriters are empowered, responsive and consistent
- Technology and documentation are easy to use
- Keeps its promises, treats me, my agency and my customers with honesty and fairness
- Treats our relationship as a real partnership
- Field and office personnel have a relationship with me and my customers, and they are very responsive
- Profit sharing and commission arrangements are fair
An independent polling firm rolls up the data (no one at IIABNY sees the individual responses) and calculates separate scores for personal and commercial lines. The results are further broken down by national, super-regional and regional carriers. The results paint an interesting picture of how carriers are performing, especially when compared with prior years.
For example, carriers slipped in the 2013 survey for both personal and commercial lines; the decline was greater for commercial lines. However, regional commercial lines carriers actually improved over the 2012 rating.
I can tell you from first-hand experience that the carriers are very interested in the results of this survey. They have the ability to purchase their individual reports from IIABNY. However, they cannot see individual responses.
The Winter 2014 survey is going on now. Whether you are a member of IIABNY or not, please take a minute to complete it by clicking the link. This is your opportunity to let your carriers know where they excel, where they're treading water, and where they, shall we say, have room for improvement.
The 200th edition of Cavalcade of Risk is online today, and I'm proud to say that the post I wrote last week about ordinance or law coverage made the cut. If you're not familiar with COR, it's a bi-weekly compendium of articles and blog posts from around the web on risk management and insurance topics. In addition to my post, this week's issue includes articles on:
- The high risks of injury and even death that temp workers face on the job
- The cyber-security risk problems with Healthcare.gov
- Whether hospitals actually boost prices to make up for the cost of treating uninsured patients
- Guaranteed issue life insurance
- How to determine how much life insurance you really need
- The Affordable Care Act's contraception mandate
- Mental illness claims
- The potential repercussions from legalizing marijuana
If any of this looks interesting to you, check out this issue. If you like what you read, share it with a colleague. Thanks, happy Wednesday, and let's keep warm out there.
Here’s something a lot of New York insurance producers don’t know: New York law does not require the producer to return any part of the sales commission on an insurance policy when it cancels early. If you have to return your commission, it’s because you agreed to do it when you signed a contract with an insurance carrier. So sayeth the state’s courts.
Actually, they said this more than 60 years ago, in the case of Western National Insurance Co. v. Haph Brokerage, Inc. The case involved a couple of transportation floater policies obtained by an insurance broker from an agent of Western National, both effective on Jan. 23, 1947. The premium for one policy was $3,625 (that’s $37,869 at today’s price level); the other was $50. The broker received a 15 percent commission on the sales.
Less than three months into the policy term, the insured canceled the more expensive policy, whereupon the carrier canceled the cheaper one. The carrier refunded $2,300 in unearned premium to the insured and billed the broker for return of $348 in commissions. The broker objected. Lawsuit ensued. The trial court ruled in the broker’s favor, and the carrier appealed. The New York State Supreme Court Appellate Division, First Department (located in New York City) heard the appeal and rendered the following decision:
"The narrow question here presented is whether an insurance broker who receives his commission on policies providing for fixed premiums which have been paid to the insurer is obligated, as a matter of law, in the absence of any agreement, to refund to the insurer an appropriate portion of his commissions in consequence of cancellations of the policies before their maturity as authorized by the policies and by statute, the broker not contributing in any way to such cancellations. … The insurer, if it desires to be protected in the event of cancellation in the manner sought by this action, may readily obtain such protection by agreement; the law does not imply any such obligation to refund on the part of the broker. This is certainly true in the absence of any general custom or practice in the insurance field, and no such custom or practice has been shown.”
However, the court narrowed the scope of its decision:
"We are here concerned only with a fixed premium policy — one not subject to audit or dependent upon any future arrangement between the parties to the insurance contract …; nor are we here dealing with an action by the broker against an assured for loss of commissions because of cancellation …; nor is there here involved a suit for unpaid commissions brought by a broker against an insurer ... We are likewise not dealing with a situation where the cancellation might be attributed in some way to the conduct of the broker himself..."
The carrier appealed this decision to New York’s highest court, the Court of Appeals, which affirmed it without comment. The New York State Department of Financial Services has cited this decision in legal opinions, most recently in 2005.
Therefore, before you return commissions on a canceled property or auto policy, double-check your contract with the carrier or wholesale broker. It could be that you don’t have to do it.
More information about contracts with carriers and wholesalers is available on the Carrier Contracts page in the Companies section of the IIABNY Web site.
IIABNY rents office space in a 94,000 square foot building, located in the Town of Dewitt and constructed in 1990. A Massachusetts-based trust owns it. As a former commercial insurance underwriter, I sometimes ponder the “what-ifs” of a potential catastrophe. For example, “What if this building was destroyed or substantially destroyed? I wonder if the owners have the right insurance?”
I don’t get invited to many parties.
Still, while this building is attractive, comfortable and in good condition, it’s 24 years old. A lot can change in 24 years. Building codes, for example. I’m neither an architect nor an engineer; my specialty is reading mind-numbing insurance policies, not mind-numbing building requirements. However, if I was to bet, I’d bet that, if the owners had to rebuild part or all of this building, they’d find a few new code requirements they’d have to meet.
Which brings us back to the insurance question (as do, let’s face it, all issues.) Does the owner of this building have the proper coverage for this situation? I don’t have a clue. Their coverage is a private matter between them, their broker and their insurer. Hopefully, though, they’ve considered this provision in the ISO Causes of Loss - Special Form, CP 10 30 10 12:
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
a. Ordinance Or Law
The enforcement of or compliance with any ordinance or law:
(1) Regulating the construction, use or repair of any property; or
(2) Requiring the tearing down of any property, including the cost of removing its debris.
This exclusion, Ordinance Or Law, applies whether the loss results from:
(a) An ordinance or law that is enforced even if the property has not been damaged; or
(b) The increased costs incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of its debris, following a physical loss to that property.
The unendorsed ISO Commercial Property Coverage Part will pay for the repair or replacement of a building so that it is restored to its original condition. It will not pay for improvements required by law. If the town government says the wiring must be upgraded, the insurer will not pay for the cost of the upgrade. If the town says too much of the building was damaged and the whole thing needs to be demolished, the insurer will not pay for that. Also, no coverage for hauling away the rubble from demolishing the undamaged part of the building.
A few thousand here, a few thousand there; after a while, we’re talking about real money.
There are remedies. ISO has published two endorsements to deal with this exposure: Ordinance or Law Coverage, CP 04 05 10 12 (for loss resulting from direct damage to property,) and Ordinance or Law – Increased Period of Restoration, CP 15 31 10 12 (for loss resulting from the loss of use of the building.) The direct damage endorsement covers the loss of value of the undamaged portion of the building when local codes require it to be demolished. It also covers the cost of demolition and the increased cost of construction resulting from having to meet new codes. The time element endorsement increases the amount of time for which the policy will cover lost income to account for the extra time needed to bring the property up to code, including the time needed to demolition the undamaged portion and remove the rubble, if need be.
Both endorsements contain a number of conditions, limitations and exclusions, so the insurance producer should review them carefully with the building owner. Also, the owner must select limits of insurance for demolition cost and increased cost of construction, so special attention must be paid to selecting adequate amounts.
I don’t know how often building codes change. However, some are probably changing right now, what with memories of SuperStorm Sandy being so fresh. The ordinance or law exposure can be a very serious one. Every insurance producer and property owner should give it some serious thought.
And, to be clear, while I ponder disasters, I would much rather one not befall the owners of IIABNY’s office building. Particularly when I’m writing blog posts at a desk located inside it. Just sayin’.
For more information on property insurance, visit the Property page in the Member Answer Center of the IIABNY Web site.
Question from an IIABNY member: My client that was advised more than three years after an alleged accident involving one of their employees. They are being asked to defend themselves in a non-owned auto liability claim. Apparently, the employee mentioned in a hearing that he had been working for our pizza shop client. This was when they were advised that they had been added to the complaint. The carrier is denying, saying not only was our client too slow in reporting (they reported it as soon as they were advised,) but also the other parties claiming damages were too slow, or “Not Prompt.” After reviewing the auto policy, I don’t see an escape clause for management if they were never advised. Now, not only is the one store being dragged in, but corporate is as well. Corporate has no ownership interest at all, other than all the stores go by one name. I do not expect the assigned risk departments to roll over unless you have some precedent you can share.
Answer: I think this may be a tough one for your insured. Here’s what the “Duties In The Event Of Accident, Claim, Suit Or Loss” condition says in the ISO Business Auto Coverage Form (CA 00 01 03 10), as amended by New York Changes In Business Auto, Business Auto Physical Damage, Motor Carrier And Truckers Coverage Forms (CA 01 12 11 11):
2. Duties In The Event Of Accident, Claim, Suit Or Loss
We have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us:
a. In the event of "accident", claim, "suit" or "loss", you or someone on your behalf must give us or our authorized representative notice as soon as reasonably possible of the "accident" or "loss". Include:
(1) How, when and where the "accident" or "loss" occurred;
(2) The "insured's" name and address; and
(3) To the extent possible, the names and addresses of any injured persons and witnesses.
Written notice by or on behalf of the injured person or any other claimant to our authorized representative shall be deemed notice to us.
b. Additionally, you and any other involved "insured" must:
(1) Assume no obligation, make no pay¬ment or incur no expense without our consent, except at the "insured's" own cost.
(2) Send us copies of any request, demand, order, notice, summons or legal paper received concerning the claim or "suit" as soon as reasonably possible.
(3) Cooperate with us in the investigation or settlement of the claim or defense against the "suit".
(4) Authorize us to obtain medical records or other pertinent information.
(5) Submit to examination, at our expense, by physicians of our choice, as often as we reasonably require.
In addition, New York Insurance Law Section 3420 states:
(a) No policy or contract insuring against liability for injury to person… 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. …
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.
So, the policy requires the named insured (or someone acting on the named insured’s behalf) to the insurer notice as soon as reasonably possible in the event of an accident, claim, suit or loss. Further, if the notice of loss is provided to the insurer more than two years after the time the policy requires, New York law puts on the insured, injured person or other claimant the burden of proving the insurer’s ability to investigate or defend the claim was not impaired. Here, the accident happened more than three years ago; a reasonable person might conclude that it would be hard for the insurer to investigate the accident, get reliable statements from witnesses, examine the wreckage, etc. Therefore, it would be difficult for the insured or claimant to prove that the insurer has not been prejudiced.
Now, the named insured just found about this suit, so they can honestly say they notified the insurer as soon as they found out. However, the insured needs to come up with a pretty good explanation as to why they were unaware of a serious car accident one of its drivers had three years ago. The insurer could reasonably say, “Hey, your business is making sure pizzas get to the people who buy them. Even if you didn’t know, you should have known.” There are a number of reasons why the employer should have known: The driver might have been injured and sought Workers’ Comp benefits; even if he didn’t make a WC claim, he might have missed a few days of work due to soreness; he might have been unable to deliver pizzas for some period of time because his vehicle was damaged; he might have been upset following the accident and spoken about it to other employees; the injured person might have called the pizza shop to complain; and so on. The claim is not invalidated if the insured or claimant can show that it was not reasonably possible for them to give notice sooner, but it might be a struggle for the insured to show that the delay was reasonable.
All in all, I think the law and the contract are on the insurer’s side here. I realize this is terrible news for your client, but unless there are some very good explanations handy, it doesn’t look to me like the insurer has a duty to defend.