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 About Tim

 

Officially the Assistant Vice President of Research, Tim is our self-proclaimed "Insurance Geek."  As one of our most recognizable names and utilized resources, he helps members every day with technical questions.

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May 16
Landlord's Appliances - Building or Contents?

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Image courtesy of www.goedekers.com. Used under a Creative Commons Attribution 2.0 license.


Question from an IIABNY member: If a landlord of an apartment building is providing appliances to the apartment units, must the landlord have a separate personal property limit under their commercial real estate policy or this can be included under the building/property coverage? Same question goes for a condominium where the sponsor provided the appliances. Self-understood, we are talking about an All Risk policy form in New York.


Answer: It depends on the provisions in your client’s policy, but this is what the ISO Building and Personal Property Coverage Form says:

“1. Covered Property

Covered Property, as used in this Coverage Part, means the type of property described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit Of Insurance is shown in the Declarations for that type of property.

a. Building, meaning the building or structure described in the Declarations, including: …

(4) Personal property owned by you that is used to maintain or service the building or structure or its premises, including: …

(d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering; …”

Therefore, the appliances can be covered as part of the building under the B&PP Coverage Form. The value of these appliances must be added to the building’s value in order to avoid underinsurance.

The ISO Condominium Association Coverage Form contains a pretty significant difference:

“1. Covered Property

Covered Property, as used in this Coverage Part, means the type of property described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit Of Insurance is shown in the Declarations for that type of property.

a. Building, meaning the building or structure described in the Declarations, including: …

(4) Personal property owned by you that is used to maintain or service the building or structure or its premises, including: …

(d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering that are not contained within individual units; …”

The building owner’s appliances are building property only if they are not contained in individual units. If the building owner is supplying appliances in the units, they must be insured as personal property, requiring a separate limit.

Your client’s policies may not be identical to the ISO forms, so it’s a good idea to check the provisions in them.

April 28
Does an Insurer Need the Client's Consent Before Inspecting Property?

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Photo by Nicolas Raymond. Used under a Creative Commons Attribution 3.0 Unported License.

Question from an IIABNY member: I have a client that is upset that his insurance company completed an inspection of his property without his consent. He feels that this may be considered trespassing. I spoke with the carrier and they state:  "In insurance, there is implied consent to inspect property based on our contractual, insurable interest in the home." Just wondering if you have any research on implied consent to complete a property inspection. I did some internet research and didn’t see anything official but did see several times that the insurance company should have permission to complete an inspection.

Answer: Some policies give the carrier the right to inspect. For example, AAIS form HO 0003 01 06 states in the policy conditions:

6. Inspections -- ‘We’ have the right, but are not obligated, to inspect ‘your’ property and operations. This inspection may be made by ‘us’ or may be made on ‘our’ behalf. An inspection or its resulting advice or report does not warrant that ‘your’ property or operations are safe, healthful, or in compliance with laws, rules, or regulations. Inspections or reports are for ‘our’ benefit only.”

The ISO Homeowners 3 policy form does not contain a similar condition, though it does require the named insured, after a loss, to show the damaged property as often as the insurer reasonably requires. Some proprietary company forms may contain a condition similar to the AAIS condition.

I did a quick search for court cases about inspection of homes by insurers and did not find anything. It seems more than a bit discourteous of the insurer to drop in and inspect the home without contacting the insured first, but I don’t know that an inspection rises to the level of trespassing. Law.com gives this legal definition of trespass:

“n. entering another person's property without permission of the owner or his/her agent and without lawful authority (like that given to a health inspector) and causing any damage, no matter how slight. Any interference with the owner's (or a legal tenant's) use of the property is a sufficient showing of damage and is a civil wrong (tort) sufficient to form the basis for a lawsuit against the trespasser by the owner or a tenant using the property. Trespass includes erecting a fence on another's property or a roof which overhangs a neighbor's property, swinging the boom of a crane with loads of building materials over another's property, or dumping debris on another's real estate. In addition to damages, a court may grant an injunction prohibiting any further continuing, repeated or permanent trespass. Trespass for an illegal purpose is a crime.”

I’m no lawyer, but it seems to me that, if the insurer’s inspector didn’t damage anything, then this doesn’t meet the legal definition of trespass. Regardless, the customer is upset, and that’s not the best way to earn customer loyalty.

April 01
IIABNY, Google Announce Pending Merger

 

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(April 1, 2016) - Internet giant Google and the Independent Insurance Agents & Brokers of New York (IIABNY) today announced that they intend to merge, positioning the technology company to re-enter the insurance market that it abruptly left earlier this year. Spokespeople for both Google and IIABNY declined to reveal the terms of the deal, citing confidentiality concerns while stakeholders evaluate it. However, it is believed that Google put up at least $10 million in cash for New York’s oldest insurance producer trade association.

Google’s purchase of IIABNY will give the company access to the data and markets of the association’s 1,750 member agencies in the Empire State. The move will allow Google, which announced weeks ago that it was shuttering its Google Compare insurance shopping service, to compete on a wide scale in the property-casualty insurance market.

IIABNY President and CEO Dick Poppa said, “We are very excited to join forces with Google. Their reputation for innovation and excellence, not to mention their ability to track the activities of everyone who goes online, makes them a natural partner for IIABNY and its member independent insurance agencies. We look forward to a very successful relationship.”

IIABNY Chair of the Board Todd Rockefeller noted, “This new venture with Google will give IIABNY and its members access to a wide range of sophisticated technology tools. Independent insurance agencies in New York will now have improved search engine optimization, along with the ability to know what their clients are doing before the clients themselves know.” He added that the IIABNY logo would likely change on a daily basis following the merger.

Neither Poppa nor Rockefeller would comment on rumors that they had been granted Google stock options.

Should Google stockholders and IIABNY members approve the merger, Google would enter into the trade association business for the first time. Industry observers have speculated that Google and IIABNY may launch the largest captive insurer in the U.S. Poppa declined to comment, calling all such speculation “premature.”

“However,” he added, “I must say that, when I retire later this year, I’m really going to miss saying to our members, ‘Happy April Fool’s Day’.”

March 31
How To Be a Good Customer

​This slideshare deck and Calvin speak for themselves. If you work with customers, you will appreciate this.

 

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March 04
Is the New Owner Stuck With the Old Owner's Lousy WC Experience Mod?

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Question from an IIABNY member: One of my accounts is a new owner of a business since November 2014. The name changed but they kept part of the old company name under a "doing business as" name. The experience modification factor for the old owner was 1.13, but there was a claim and when the new owner took over his mod was now 1.31. Would the new owner have to keep this mod for his business if he took over? Wouldn’t he start with 1.00 mod? He kept a few of the employees, put a safety practice in place and hired a safety consultant.

 

Answer: Under the New York Experience Rating Plan Manual rules, “The experience for any entity undergoing a change in ownership will be retained or transferred to the experience ratings of the acquiring, surviving or new entity unless specifically excluded by this Plan.” The rules go on to say,

“The experience will be excluded only if the Rating Board confirms all of the following:

  • The change must be a material change such that:
    • The entire ownership interest after the change had no ownership interest before the change, or
    • The collective ownership of all those having interest in an entity results in either less than:
      • 1/3 ownership before the change, or
      • 1/2 ownership after the change; and
  • The material change in ownership is accompanied by a change in operations sufficient to result in reclassification of the governing classification; and
  • The material change in ownership is accompanied by a change in the process and hazard of the operations. Change in process and hazard is determined by the Rating Board.”

So, not only does the ownership have to change, but so do the operations, process and hazards. If the new owner is performing the same operations as the old one, then he’s stuck with the old owner’s experience mod.

March 02
Rocky Mountain High: Court Confers Cannabis Coverage For Colorado Company

4864154481_ba85a7d2c3_z.jpgHow could I not write a post about this one? Growing, possession, sale, etc. of marijuana, as you may have heard, is illegal under federal law. Conversely, an increasing number of states have made it legal, at least for certain uses. New York is in the midst of implementing a temporary law that made use of medical marijuana legal.

Two states and the District of Columbia have legalized marijuana for its, um, traditional use. In Colorado, you can buy it in stores, not on street corners. This is the sort of use that Congress had in mind when it prohibited marijuana back in the 1930’s. Consequently, the U.S. has a classic federal-vs.-state conflict when it comes to the regulation of this substance.

This comes back to insurance. (Repeat after me: All things come back to insurance.) Property insurance policies do not cover “contraband.” “Contraband” refers to goods prohibited by law. Marijuana certainly seems to fit that definition, at least if one is referring to federal law. Suppose, though, that the insurance and the property are in a state that has taken a more tolerant legal attitude? Does the insurance cover it then?

A federal district court in Colorado decided this question two weeks ago, and it said, “Yes.”

The plaintiff was a medical marijuana retailer in Colorado Springs. It has a growing facility adjacent to its store. It bought a commercial package policy from a surplus lines carrier, effective June 29, 2012. At around the same time, a wildfire started near Colorado Springs. It did not damage the store’s buildings. However, the retailer claimed that smoke and ash overwhelmed its ventilation system. The resulting lack of ventilation damaged the plants.

The store filed an insurance claim in November, seeking $200,000 for growing plants and $40,000 for plants that had been harvested and were being prepared for sale. Eight months later, the insurer denied coverage, arguing that the occurrence began before the policy took effect; that the store’s claim about the date of loss was a “material misrepresentation” that voided coverage; that the insured did nothing to mitigate the loss; and the insured waited too long to give notice of the loss.

The store subsequently sued the insurer for breach of contract, bad faith and unreasonable delay with regard to this and an unrelated theft damage claim. The insurer responded that:

  • The policy provision covering “stock” does not apply to growing plants
  • Any coverage is limited by a “growing crops exclusion”
  • The loss actually commenced before the policy took effect
  • Coverage for growing or finished marijuana is subject to an exclusion for contraband
  • Coverage for marijuana is a violation of public policy and void.

The court found that:

  • The policy’s definition of “stock” could cover growing plants
  • However, the growing crops exclusion removed all coverage for growing plants
  • A trial is required to determine when the loss actually commenced
  • The policy’s exclusion of coverage for contraband was ambiguous because of the difference between federal law and the federal government’s stated attitude toward enforcement in states that have legalized marijuana. Further, the “evidence strongly suggests that the parties mutually intended to include coverage for harvested plants constituting (the retailer’s) inventory.” The court noted that the insurance application asked several questions about the amount and value of the inventory. Also, the insurer knew prior to binding that the insured was in the medical marijuana business, and it chose to issue the policy anyway.
  • Prior court rulings that insuring marijuana is against public policy did not apply to this case.

Based on these conclusions, the court ordered that the dispute over the claim for the finished plants should go to trial.

With New York’s medical marijuana industry in its initial stages, I think it’s a matter of time before we start to see these kinds of claims here. While a federal court decision in Colorado is not necessarily binding in New York, this decision will likely inform judges’ thought processes when similar disputes reach their courtrooms. This case gives us a preview of what we can expect as New York’s medical marijuana experiment goes forward.

February 19
Carry Cyber Insurance or Be Sorry

 

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If you are in business today, cyber insurance is no longer optional. It’s not optional for insurance clients, and it’s not optional for insurance agencies. As if the point needed further emphasis, a New York appellate court drove it home yesterday.
 
The operator of several Five Guys restaurants in the Albany area got hacked. Criminals accessed customers’ credit card information and went shopping. The credit card holders naturally protested the unauthorized charges to their card issuers. The issuers got stuck absorbing the costs of these fraudulent charges. At least one of the issuers, Trustco Bank, sued the restaurant operator for failing to take reasonable care of the data. According to a report in the Albany Times-Union, the bank sought more than $104,000 in damages.
 
The operator made a claim under the liability coverage section of its business owner’s insurance policy. The carrier denied coverage and refused to provide a defense. The reason was simple. Commercial general liability coverage applies to the insured’s liability for “bodily injury” and “property damage”. The policy defined “property damage” as injury to or loss of use of “tangible property.” It also stated that, “[f]or the purposes of this insurance, electronic data is not tangible property.” The policy also excluded coverage for damages arising out of the loss of electronic data.
 
The insurer concluded 1) there was no property damage, as the policy defined that term; and 2) the coverage did not apply to loss of data. Accordingly, there was no insurance for this loss.
I find it pretty incredible that the trial court didn’t uphold the claim denial, but it ordered the carrier to provide a defense. The carrier appealed, and yesterday the appellate court ruled that the policy’s “unambiguous language” meant that the bank’s lawsuit was not a claim for property damage and that the loss was excluded. Honestly, insurance policies do not get much more straightforward than that.
 
It cannot be said often enough. Every organization has an exposure to cyber loss, whether it’s a loss of customer data, loss of proprietary internal information, vandalism to a web site, infiltration of a virus, unauthorized transfers of funds, or any number of losses. Insurance agents, to do their jobs properly, must discuss this with their clients. The client might still refuse to buy the coverage. I heard as much last fall when I covered this topic in a continuing education course I presented. Most of the producers in the classroom reported that their clients believe it won’t happen to them. That’s probably what the operator of these restaurants thought.
 
And insurance agencies are not immune. There’s an awful lot of confidential client information on their servers. Social Security numbers; salary data; home values; names and ages of children; driving records; loss information – the list goes on and on. If agency principals think cyber criminals are not trying to break into their networks to get their hands on it, they are engaging in a dangerous form of denial. It can happen. It will happen to someone reading this blog post. It’s a sad fact, but it’s true.
 
Buy the coverage for your agencies. Offer it to your clients. Explain to them why their businesses are in jeopardy without it. Confirm in writing their decisions not to purchase. Unfortunately, some may decide not to buy the coverage today, and then try to sue the agent after an uninsured loss occurs. That’s why it’s important to have a paper trail, either electronic or physical. My hope is that most will see the wisdom in buying the coverage and that the paper trail will not be needed.
 
It’s the 21st century. Our lives and our property reside on computer networks, and any network can be hacked. Cyber insurance is just not an optional purchase anymore.

 

February 15
Justice Antonin Scalia and Insurance

Justice Antonin G. Scalia

Associate Justice Antonin G. Scalia, 1936 - 2016

U.S. Supreme Court Associate Justice Antonin G. Scalia passed away unexpectedly last Saturday. My condolences go out to his family and loved ones. Love him or hate him (and it appears plenty of people did both,) Justice Scalia had an immense influence on this country’s legal system. He was devoted to the idea that judges should interpret the U.S. Constitution the way its authors intended. His sometimes colorful opinions disdained the idea of the Constitution as a document that should adapt to the times.

As we remember this larger-than-life jurist, it’s interesting to survey his opinions on cases that affected the insurance industry. From his appointment in 1986 until last week, the court considered 1,830 cases that included the word “insurance” (according to Google Scholar.) Trust me; I didn’t look at all of them. What follows are a handful of cases on which he wrote majority or dissenting opinions. This survey does not include insurance-related cases in which he concurred or dissented but did not write opinions.

  • Writing for a unanimous court in 2003, Justice Scalia held in Kentucky Association of Health Plans, Inc. v. Miller that the federal Employee Retirement Income Security Act (ERISA) does not pre-empt certain state laws. However, the exception applies only to laws that 1) are specifically directed toward entities engaged in insurance; and 2) substantially affect the risk pooling arrangement between the insurer and the insured.
  • In a major 1993 decision, Hartford Fire Ins. Co. v. California, he sided with the majority. They held that the McCarran-Ferguson Act’s exemption from anti-trust laws did not protect domestic insurers who acted together with foreign reinsurers. However, he disagreed with the majority’s conclusion that the insurers’ actions amounted to a boycott, as McCarran-Ferguson uses that term. He also dissented from the decision to apply U.S. anti-trust law to those reinsurers.
  • In 2002, he wrote for the majority in Great-West Life & Annuity Ins. Co. v. Knudson that ERISA does not authorize court-ordered reimbursement to an insurance plan for its payments when the claimant wins damages from a third party.
  • In 2003, he dissented from a decision that threw out a $145 million punitive damages award against State Farm. He argued that the Constitution does not protect against excessive or unreasonable awards of such damages.
  • In 2000, he wrote for a unanimous court on a bankruptcy case. The bankrupt business owed its insurer $50,000 in delinquent Workers’ Compensation premium. The business’s bank was the secured creditor in the case, so the insurer went after the bank for the premiums. Justice Scalia ruled that the federal bankruptcy law does not permit a third-party creditor to recover that way.
  • In 1998, he wrote again for a unanimous court, siding with the Internal Revenue Service in a dispute with Atlantic Mutual over the meaning of the term “reserve strengthening.”

Justice Scalia used some of his sharpest words in opinions related to the Affordable Care Act. I think it’s reasonable to conclude that he was not a fan:

“The dissent treats the Constitution as though it is an enumeration of those problems that the Federal Government can address — among which, it finds, is ‘the Nation's course in the economic and social welfare realm,’ ..., and more specifically ‘the problem of the uninsured,’ ... The Constitution is not that. It enumerates not federally soluble problems, but federally available powers. The Federal Government can address whatever problems it wants but can bring to their solution only those powers that the Constitution confers, among which is the power to regulate commerce. None of our cases say anything else. Article I contains no whatever-it-takes-to-solve-a-national-problem power.” (National Federation of Independent Business v. Sebelius, 2012, pertaining to the Act’s so-called individual mandate)

“Words no longer have meaning if an Exchange that is not established by a State is ‘established by the State.’ … Under all the usual rules of interpretation, in short, the Government should lose this case. But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved…The Court's next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges… The Court claims that the Act must equate federal and state establishment of Exchanges when it defines a qualified individual as someone who (among other things) lives in the ‘State that established the Exchange,’ ... Otherwise, the Court says, there would be no qualified individuals on federal Exchanges, contradicting (for example) the provision requiring every Exchange to take the ‘`interests of qualified individuals'’ into account when selecting health plans. ... Pure applesauce… For its next defense of the indefensible, the Court turns to the Affordable Care Act's design and purposes…The Court's decision reflects the philosophy that judges should endure whatever interpretive distortions it takes in order to correct a supposed flaw in the statutory machinery…This Court, however, concludes that (a) limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare…And the (NFIB and King cases) will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.” (King v. Burwell, 2015, which held that health insurance premium tax credits are available to taxpayers who live in states that did not establish their own health benefit exchanges)

I disagreed with many of Justice Scalia’s legal opinions on a wide variety of issues. Regardless, his was one of the great legal minds of our time. He left an indelible mark on American law and society. I’ll leave it to others to argue over whether that mark was for good or ill. Rather, I’ll salute his intellect and his devotion to public service. May he rest in peace.

February 08
3-D Printing: Your New Product Liability Exposures

I don't get a lot of questions about product liability, but it's a topic that came to mind as I went looking for blog topics today. I found three TED Talks that show what is possible today with 3-D printing, and I think they're both pretty interesting. Avi Reichental gives a tour of all the different products that individuals and corporations are making with this technology - everything from suits to assist the physically handicapped to cakes to sneakers. He says the question we should be asking is, "How will 3-D printing change our lives?"

 

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Fashion designer Danit Peleg uses 3-D printers to make her own clothes, both for her clothing lines and for her own personal use. During the talk, she wears a skirt that she printed on the road. She describes a textile that she created using open source designs. While I can't foresee myself making a 3-D printed t-shirt anytime soon, the day might soon come when "I don't have anything to wear" will no longer be a valid excuse to get out of going to that party you're dreading.

 

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This last one is simply amazing. Anthony Atala shows how a 3-D printer can create a transplantable human kidney out of living cells. He even introduces the audience to one of his patients - a young man who received a manufactured bladder in 2001. 

  

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Now, very few of your clients are going to use 3-D printers to create a femur. However, it seems clear to me that the use of 3-D printers is limited only by our imaginations. Your clients, whether they're scientists, small business owners, or personal lines clients freelancing at night, will eventually have the capability to make virtually anything. That has a lot of implications for liability insurance coverage and the types of claims the industry will be paying in the future. Surplus lines carriers will likely provide a lot of the coverage for these products for now and going forward. However, I think the technologies will have reverberating effects on the whole product liability insurance market. 

 

We live in interesting times.

February 05
Order in the Court (Part 2): Additional Insureds

Order in the Court (Part 2)-Additional Insureds.jpgAutomatic additional insured endorsements to a commercial general liability insurance policy typically cover a third party as an additional insured when the named insured and the third party "have agreed in writing in a contract or agreement" that the policy will do so. Many construction projects are based on written contracts, so there should be no problem with the coverage, right? Well, maybe. A Manhattan trial court issued a decision last month on the question of whether a written contract actually included an agreement that a subcontractor would cover a building owner.

It's the same old contractual risk transfer love story. Building owner hires general contractor to do some work. GC hires subcontractor to restore the building's exterior facade. Subcontractor's employee slips and falls due to ice and snow on the building's roof and gets hurt. Employee sues building owner. Building owner looks to GC's insurer for liability coverage. GC's insurer looks to subcontractor's insurer to cover the building owner. Sub's insurer sees things differently. GC's insurer sues, seeking a court order for the sub's insurer to:

  • Cover the owner as an additional insured under the CGL policy
  • Hold the owner harmless under the exception to the contractual liability exclusion in the CGL policy
  • Reimburse the CG's insurer for its defense costs.

The sub's CGL policy provided additional insured coverage to entities as "required by written contract." The court noted that the contract between the GC and the sub required the sub to provide additional insured coverage for the GC. "However," the judge wrote, "nowhere in the (subcontract) does it expressly or explicitly state that (Sub) shall provide additional insured coverage to (Owner). Indeed, (Owner) is not mentioned at all." The GC's insurer argued that the subcontract referred to an American Institute of Architects model contract. The model stipulates that the subcontractor shall cover the owner as an additional insured. The judge concluded that the AIA document was not a "written contract," even if that's what the two parties intended. Apparently, she felt that a reference in the main contract to it was not enough to make it part of the contract. Because the contract did not require the sub to provide the coverage, the judge ruled that the sub's insurer had no obligation to defend the owner.

The court also declined to make the sub's insurer provide contractual liability coverage. Because the owner and the sub were not parties to the lawsuit before the court (which was, after all, between two insurance companies), the judge held that the question of the sub's obligations to the owner should be determined in a separate action. Because the court found no obligation to provide either additional insured or contractual liability coverage, the judge also rejected the GC insurer's demand that the sub's insurer reimburse its defense costs.

The moral for insurance agents? Simply be aware that automatic additional insured endorsements require a written contract that specifically requires additional insured coverage. A contract referring to a generic document that mentions additional insured coverage will not cut it. These endorsements pick up a lot of exposures, but they don't cover everything. I don't see anything that the subcontractor's agent did wrong here. The problem is that the GC believed that the requirements in the AIA document would be binding, and they weren't.

The GC's beef might be with its own contract attorney, assuming it had one. (Side note: A lot of IIABNY members contact me to get sample contracts. I provide samples if I can find them, but I always caution members to have qualified attorneys look them over. It's not hard for me to imagine that this GC created its contract without a proper legal review.)

This decision is less than a month old. It's possible that the GC's insurer will appeal. For now, though, the sub's insurer is off the hook for this loss.

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