Photo by Jonathan C. Wheeler. Used under a Creative Commons Attribution 2.0 license.
Question from an IIABNY member: I have attached pages 1 and 2 of the ISO Building and Personal Property coverage form (CP 00 10 06 95). Our question pertains to “Property Not Covered”, specifically item A.2.o. on page 2. This clause states that vehicles and self- propelled machines that are licensed for public road use, or operated principally away from described premises, are not covered property. Our question is whether or not non-motorized kayaks are considered “vehicles”, and therefore are not “covered property”.
Our insured had three kayaks stolen. They were not in the water when stolen. They were temporarily away from the insured premises, on dry land. Insurer is denying coverage under A.2.o, claiming that the kayaks are vehicles principally operated away from the described premises, and therefore are not “covered property”.
There is coverage included for business personal property away from premises (The policy in question includes a limit of $500,000 for Business Personal Property that is temporarily at a location not owned, leased, or operated by the insured).
A kayak is watercraft, but not self-propelled. We believe the wording of A.2.o. is intended to make a distinction between “vehicles” and “self-propelled machines.” We also think the intent of the wording “including aircraft or watercraft”, which is in parentheses after “self-propelled machines”, is intended to apply only to self-propelled machines, not to vehicles. In other words, only self-propelled watercraft that is operated principally away from premises are “property not covered”. At least this is the way it has always been explained to me and the way I have seen it interpreted by insurance companies the past 30 years.
The insurer disagrees. They feel that all watercraft including kayaks are “vehicles”. They feel that paddleboards, surfboards, inflatable floating lounge chairs or rafts, boogie boards, inner tubes, & other such personal floatation devices are “vehicles” because they can convey persons or property from point A to point B. Following that logic almost any property that a person could use to convey themselves or their property on land or in the water, which is used primarily away from their premises, would be considered a “vehicle”, which I don’t believe is the intent of 2.A.o.
I have never heard anyone in the insurance industry, whether adjusters, or underwriters, even with marine insurance, ever refer to watercraft as a vehicle. Are we wrong in thinking that this loss should be covered under the business personal property away from premises extension, and that these kayaks are not vehicles?
Answer: This is a tough one, but I think I have to side with the insurer. I will grant you that it splits some pretty fine hairs, but here is my line of thinking.
The provision in question is:
Covered Property does not include: …
o. Vehicles or self-propelled machines (including aircraft or watercraft) that:
(1) Are licensed for use on public roads; or
(2) Are operated principally away from the described premises.
This paragraph does not apply to:
(1) Vehicles or self-propelled machines or autos you manufacture, process or warehouse;
(2) Vehicles or self-propelled machines, other than autos, you hold for sale; or
(3) Rowboats or canoes out of water at the described premises; ...
The form states that Covered Property does not include vehicles or self-propelled machines. Right off the bat it makes a distinction between transportation property that has its own power and property that doesn’t. It implies that “vehicles” are not self-propelled, and the other type of property is.
Your interpretation of the phrase in parentheses is not unreasonable. I think it would have been clearer for ISO to say, “Motor vehicles, aircraft, watercraft, and other vehicles or self-propelled machines …” It is very easy for a reader to conclude that the phrase in parentheses applies to self-propelled machines and not vehicles.
However, since the policy does not define “vehicles,” I checked the dictionary (I’ve read enough court opinions to know that judges often do this to determine a word’s plain and ordinary meaning.) The American Heritage College Dictionary has six definitions of “vehicle,” but only the first is relevant here:
“1.a. A device or structure for transporting persons or things; a conveyance: a space vehicle. b. A self-propelled conveyance that runs on tires; a motor vehicle.”
According to this definition, a vehicle can be self-propelled or not. Using this, a mode of transportation that relies on human power is a vehicle (bicycle, sled, etc.) It follows from this definition that a kayak is a vehicle. It also fits within the second of the two criteria given by the form – it is operated principally away from the described premises.
It’s also worth noting that the paragraph gives coverage back for rowboats and canoes out of the water at the described premises. If ISO did not intend to exclude non-self-propelled watercraft, it would be unnecessary to specifically identify these items for coverage.
Based on this, I believe the denial of coverage was correct. It would be different if the kayaks were for sale – the form clearly includes such items within the realm of Covered Property. If they were not for sale, then coverage does not apply.
I realize this isn’t what the client wants to hear, but I believe it is the correct interpretation.
Readers, what do you think? Agree with my conclusion or disagree? Leave your thoughts in the comments.
I turned 53 last weekend. (Insert jokes about old age here.) A few weeks before I turned 25, way back during the Ronald Reagan years, the New York State Legislature passed and Gov. Mario M. Cuomo signed a bill into law. It slapped new requirements on insurers
that wanted to cancel or non-renew commercial insurance policies or make major changes to them. No longer could insurers double a business’s premium or exclude important coverage with no advance notice, or non-renew a policy with a month’s notice.
I was an underwriting assistant with a large national insurer group at the time, and I remember what a big deal this change was. The underwriters in my office knew that this would take some getting used to. When I became an underwriter, I also had to work within its confines. It wasn’t always easy, but it was the law. The rules may cause underwriters some additional work they don’t want, but they’re not all that difficult to understand.
This law, New York Insurance Law Section 3426, is now 28 years old, meaning that since its enactment:
- Three of IIABNY’s employees were born
- The World Wide Web and DVD technology were invented
- Four U.S. presidents have been elected, three of them twice
- Regis Philbin started a syndicated morning TV talk show and retired from it after a 23-year run
- The insurer groups USF&G, Continental, St. Paul, General Accident, and The Home have ceased to exist.
And yet, even after all this time, too many insurers either can’t or won’t follow this law. It passed the point of being ridiculous a long time ago.
During the past week alone, I have received the following complaints from IIABNY members.
An underwriter extended a policy because he sent a late conditional renewal notice. He then told the broker he could just let it expire after the extension period ended.
An underwriter issued a renewal policy more than 60 days before the expiration date. Because of this, he believed that he did not have to send a conditional renewal notice about coverage and premium changes.
An underwriter believed that he could hike the renewal premium by 17 percent without sending a conditional renewal notice. He had switched the policy from one insurer in his group to another. He believed that this absolved him of responsibility for sending a notice.
I wish I could say that this is a new problem, but it’s not. I receive so many emails about problems our members have with insurers on this, I saved the law’s text as auto-text in Microsoft Outlook. I can insert the text in an email with two clicks of my mouse. It’s saving me a lot of time. I taught a webinar last fall about the law’s requirements. I’ve written several blog posts before this one and even done an episode of my podcast on the topic. I’ve been on this job since May 2002, and I probably got my first question about this law on day two.
Here are the facts from the law itself.
It applies to commercial risk, professional liability, and public entity insurance policies.
It defines “renewal” or “to renew” as “the issuance or offer to issue by an insurer of a policy superseding a policy previously issued and delivered by the same insurer, or another insurer under common control.”
An insurer must provide a written notice to the first-named insured and the insured’s authorized agent or broker if it decides not to renew a policy. It also must provide the notice if it decides to renew with certain coverage changes or premium increases. Otherwise, the policy “shall remain in full force and effect pursuant to the same terms, conditions and rates.”
The insurer must send the notice if it wants to change limits; change the type of coverage; reduce coverage; increase deductibles; add exclusions; or increase the premium more than 10 percent (not counting any premium increase generated as a result of increased exposure units, or as a result of experience rating, loss rating, retrospective rating or audit.)
The notice must contain the specific reason or reasons for the insurer’s actions; provide the amount or a reasonable estimate of any premium increase; and describe in plain and concise terms the nature of any other proposed changes.
The notice must inform the insured and the agent or broker that either may obtain the insured’s loss information from the insurer. The insurer must provide this information within 10 days of a request for it.
For most policies, the insurer must provide the notice 60 to 120 days before the expiration date. It must send notices for excess liability policies and policies issued to very large businesses 30 to 120 days in advance.
If the insurer sends the notice less than 60 days before the expiration date, it must extend the expiring coverage and rates. The extension must be for 60 days from the date of the notice. The only exception to this rule is if the insurer sends a conditional renewal notice at least 30 days in advance and the insured does not replace the policy. If the insurer sends the notice on or after the expiration date, the insured is entitled to another full year of coverage. This coverage must be at the same terms and conditions of the expired policy and at either the expiring rates or the renewal rates, whichever is less.
Folks, this isn’t that hard. You have to give your policyholders at least two months’ warning if you’re going to drop them, change or reduce their coverage, or hike their premiums. You can’t play cutesy games to get out of it by switching the coverage to another insurer in your group. You can’t just issue the renewal policy two months early and let the insured figure it out. You have to tell them what changed and why, and you have to let them know they can get their loss history. You can’t just let a policy expire.
If this was a new law, I could understand the confusion, but it isn’t and I don’t. If you manage an underwriting team and your people are not fully complying, this is your fault. Don’t rely on a cheat sheet or some other shortcut to educate them; give them a copy of the law. You can download it from the IIABNY Web site. For all that, give them a copy of this blog post. Just make sure they’re following the law.
Yes, it’s a hassle, but it’s part of doing commercial lines business in New York. And lest this start a litany of posts about how New York hates business, be aware that 18 other states also require 60 days’ notice of nonrenewal. Kentucky requires 75 days’ notice, and South Carolina requires 90 days’ notice during hurricane season. More than half the states require at least 30 days’ advance notice of material changes and/or premium increases. New York is not unique in this respect.
This law has been on the books for almost three decades. Every insurer operating in this state should be accustomed to it by now. Stop trying to wiggle your way out of the requirements. It makes you look dishonest, whether you mean it to or not. Educate your underwriters so they know what they have to do. The insurance business is difficult enough for underwriters, agents and brokers without having to deal with easily solvable compliance issues. Follow the rules.
A convenient follow-up to yesterday's post showed up in my inbox this morning. InsuranceJournal.tv has a five-minute interview with Chris Christian from US Risk Brokers that is well worth your time. I would especially direct the attention of insurance producers to her comments at the end about whether producers have an obligation to find the right policy for the client when all the client asks for is invasion of privacy coverage. Her point: You may not have a legal obligation, but you have an ethical one. To which I give a hearty, "Amen!"
Unless you’ve been paying very close attention to policies issued since May 1, you might not have noticed a subtle but potentially significant change in commercial general liability insurance policies based on ISO forms. Starting on that date, a new endorsement must be attached to all ISO CGL policies – CG 21 06 05 14, titled Exclusion – Access Or Disclosure Of Confidential Or Personal Information And Data-Related Liability – With Limited Bodily Injury Exception.
The unendorsed CGL coverage form states that the insurance does not apply to damages arising out of “The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.” If a business gets sued because of alleged damage to someone else’s data, the policy will not provide coverage. This new endorsement tacks on an additional paragraph to this exclusion. It now says that the insurance does not apply to damages arising out of, “Any access to or disclosure of any person's or organization's confidential or personal information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information.”
Translation: No coverage for you if someone sues you for a data breach. This exclusion applies to both Coverage A (Bodily Injury and Property Damage Liability) and Coverage B (Personal and Advertising Injury Liability.) This prevents an insurer from having to cover a loss that might fit within the policy’s definition of personal and advertising injury. ISO’s explanatory memorandum described the impact of the endorsement this way:
“With respect to bodily injury and property damage arising out of access or disclosure of confidential or personal information, these changes are a reinforcement of coverage intent. As discussed above, damages related to data breaches, and certain data-related liability, are not intended to be covered under the abovementioned coverage part. These types of damages may be more appropriately covered under certain stand-alone policies including, for instance, an information security protection policy or a cyber liability policy.
To the extent that any access or disclosure of confidential or personal information results in an oral or written publication that violates a person's right of privacy, this revision may be considered a reduction in personal and advertising injury coverage.”
ISO rules have made this endorsement mandatory; we should expect the next edition of the Commercial General Liability Coverage Form to have this wording built in. Also, the New York State Department of Financial Services approved this endorsement for use here last December. (The filing is available for download using the DFS rate, rule and form filing search tool. Enter “ISOF-129157450” in the SERFF Tracking Number field.) It should be appearing on new and renewal policies now.
There is a New York legal requirement to keep in mind. New York Insurance Law Section 3426(e)(1) states that a CGL policy issued by an admitted insurer:
“(S)hall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention: … to condition its renewal upon … reduction of coverage … or addition of exclusion …”
It appears that New York law may require insurers to send conditional renewal notices on every CGL policy renewal affected by this change. The notice must “contain the specific reason or reasons for nonrenewal or conditional renewal … and describe in plain and concise terms the nature of any other … changes specified in (the wording quoted above) …” I’m willing to bet that not too many underwriters are aware that the addition of this endorsement might trigger that obligation.
On the other hand, ISO’s response to NYSDFS questions about the filing indicates that ISO does not view this as a reduction in coverage:
“It is important to note that notwithstanding the revisions contained in the referenced filing, there are several current exclusions in the ISO CGL and CLU Coverage Forms that may preclude coverage for records in the custody of an insured. For example, under Coverage A – Bodily Injury And Property Damage Liability, the Damage To Property exclusion provides, in part, that insurance does not apply to property damage to personal property (which could potentially include various types of records) in the care, custody or control of the insured. This exclusion also precludes coverage with respect to property the named insured owns, including any costs incurred to repair, replace or restore such property. In addition, the Electronic Data exclusion as it currently exists in the CGL and CLU Coverage Forms excludes coverage, in part, with respect to damages arising out of the loss of, loss of use of, and damage to electronic data, which also could potentially include various types of records.
With respect to bodily injury and property damage arising out of access or disclosure of confidential or personal information, the changes contained in this filing are a reinforcement of coverage intent. As discussed in the Explanatory Memorandum submitted with this filing, damages related to data breaches, and certain data-related liability, are not intended to be covered under the CGL and CLU Coverage Parts. With respect to personal and advertising injury liability arising out of access or disclosure of confidential or personal information, this revision may be considered a reduction in personal and advertising injury coverage to the extent that any access or disclosure of confidential or personal information results in an oral or written publication that violates a person's right of privacy. It is important to note that other invasion of privacy offenses (i.e., those that do not otherwise involve access or disclosure of confidential or personal information) are not expressly addressed by the exclusions newly introduced in this filing.”
Essentially, ISO is saying that they never intended for the CGL form to cover liability for data breaches, so this isn’t a reduction in coverage. That leads to the question of why it feels the endorsement is necessary. My guess is that the insurers who subscribe to ISO forms have been unnerved (understatement) by some of the damages resulting from these breaches and want the policy to plainly state that there is no coverage. Whether ISO’s arguments about the intent of the form will be enough to absolve insurers of the obligation to send conditional renewal notices is an open question.
I’ll throw that open question to all of you. What do you think – does the law require insurers to send conditional renewal notices on thousands of CGL policy renewals, or do you agree with ISO that the endorsement is simply an affirmation of coverage intent with no real reduction in coverage?
Wow. Just wow.
Ten years from now, this may change everything.
Hardly a week goes by that I don’t get a question from an IIABNY member regarding the classification of a person working for someone else. The “someone else” is attempting to classify that person as an independent contractor, rather than an employee. Why? Because if that person is not an employee, the person who hires him does not have to provide Workers’ Compensation benefits, Unemployment Insurance, matching Social Security and Medicare taxes, and so on. This fluidity of classification is so common that alarm bells go off in my head whenever I hear the number 1099 (the IRS form used to report miscellaneous income paid to a contractor.)
Sometimes, insurance companies get into disputes with other insurers about whether someone is an independent contractor. Such was the case in a decision handed down by the New York State Supreme Court’s Appellate Division in Rochester earlier this month. An insurer provided commercial general liability coverage for a sole proprietor in the plumbing business. This individual frequently did work for another plumbing company, which was insured by a different insurer. While the sole proprietor was working at a residence, a fire started and damaged the home. The sole proprietor looked to his insurer for coverage. However, the insurer denied coverage, arguing that he was acting as an employee of the other plumbing company at the time of the loss. Meanwhile, the insurer for the plumbing company also denied him coverage on the grounds that he wasn’t an employee (and therefore not an insured under its liability policy.) Suffice to say that our sole proprietor was not feeling the love from anyone.
His own insurer sought a declaration in court that it had no obligation to defend or indemnify him, and it won at the trial court level. The majority of judges on the appellate court, however, saw it differently:
Here, we conclude that the Dryden policy unambiguously provides coverage for Goessl in the underlying action. The Dryden policy states that, "if the named insured is an individual, both the individual and his/her spouse are insureds but only with respect to the conduct of a business of which he/she is the sole proprietor." "Business" is broadly defined in the Dryden policy as "a trade, profession, or other occupation, including farming, all whether full or part time." The record in this case establishes that Goessl was the sole proprietor of S & K Plumbing and that, at the time of the fire, he was engaged in the conduct of his "trade, profession, or other occupation" as a plumbing subcontractor for AP Daino. Because the injury in the underlying action allegedly arose out of the conduct of Goessl's plumbing business, plaintiff is obligated to defend and indemnify him in the underlying action …
… the record establishes that AP Daino and Goessl intentionally structured their business relationship as a long-term subcontracting arrangement rather than an employment relationship. AP Daino did not provide Goessl with health insurance or other employee benefits, and did not withhold taxes or pay social security or unemployment taxes on his behalf. Goessl determined his own hourly rate, submitted invoices to AP Daino on behalf of S & K Plumbing, and received a Form 1099-MISC, for miscellaneous income, as opposed to a W-2 wage statement. At AP Daino's request, Goessl obtained his own liability coverage, which is further evidence that neither party considered Goessl to be an "employee" under the MSA policy.
Although it is undisputed that Goessl was an insured under AP Daino's workers' compensation policy, the record indicates that the workers' compensation carrier required AP Daino to include uninsured subcontractors on its policy, and Goessl was listed as an uninsured subcontractor, not as an employee, on the policy. …
The majority concluded that Mr. Goessl was an independent contractor at the time of the fire, not an employee of AP Daino. Therefore, his insurer must cover the loss. Not all of the judges bought this conclusion, however:
In my view, the court properly considered and gave appropriate weight to the evidence in determining that Goessl was an employee of AP Daino. Specifically, on the day of the fire, Goessl went to AP Daino's Central Square office, picked up a van, and drove his crew of AP Daino employees to the designated work site; Goessl previously was employed by AP Daino before being approached about working for AP Daino as an "independent contractor"; Goessl was paid on an hourly basis; Goessl performed the same type of work as other AP Daino employees; Goessl introduced himself to customers as "Stan from AP Daino"; and, in all respects, AP Daino directed the work, told Goessl where to go, and told him what to do. Also, Goessl worked 40 hours per week as a plumber for AP Daino and used AP Daino tools for that work. Notably, the underlying loss occurred in 2009 and, in 2010, Labor Law § 861-c was enacted and Workers' Compensation Law § 2 was amended precisely because "unscrupulous employers [were] intentionally reporting employees as independent contractors to state and federal authorities or workers' compensation carriers in record numbers" ... Moreover, Goessl's designation as an independent contractor by AP Daino for income tax reporting purposes was improper ... As a result, I respectfully submit that the majority's rejection of the court's factual finding that Goessl was an employee of AP Daino is not only contrary to the well-settled standard that we apply when reviewing nonjury verdicts, but it is also contrary to the overwhelming evidence presented at trial and the strong public policy that militates against the improper and unscrupulous classification of employees as independent contractors.
I take some comfort in the fact that, when I have trouble figuring out whether someone is an employee or not, even judges can’t agree. It will be interesting to see whether this decision gets to the New York State Court of Appeals. Stay tuned.
My recent post about telematics is just one of the many fine articles you'll find in the new issue of Cavalcade of Risk hosted by Waterway Financial Group. Read about
- The implications of prescription drugs hitting the market faster
- Underlying Workers' Compensation risks
- Drug-resistant germs
- Group life insurance
Read and learn!
Mere days after I published a blog post on insurance implications for those who drive for Uber, Lyft, SideCar and similar ridesharing services, Lyft has announced a partnership with MetLife
to help close the coverage gap. Clearly, my blog has reached unprecedented influence in the executive suites of corporate America.
All right, I suppose it's possible that this deal was under discussion long before I set pixel to computer screen this week. I just want to be able to put "Media Heavyweight" on my business card.
Seriously, Lyft's announcement on its blog is short on details about the arrangement, possibly because they don't know yet what those details will be. The most it says is, "In the coming months, we will work together with MetLife Auto & Home to develop insurance solutions that further protect Lyft’s drivers and passengers when utilizing this new sharing economy platform." Sounds like a work in progress.
Still, it's encouraging to hear of an auto insurer looking for a way to meet a new insurance need, rather than simply excluding coverage or turning these drivers away. I hope to hear soon that independent agency insurers are following suit.
ISO overhauled its Commercial General Liability insurance program last year, including some new endorsements and revisions to many existing ones. Some of the most significant changes came to the additional insured endorsements. In this episode of the Ask Tim podcast, I discuss changes regarding:
- Coverage permitted by state law
- Coverage required under a contract
- Limits required under a contract
The New York State Department of Financial Services has approved all of these endorsements, so they are available for use on policies right now. Take four minutes to get the scoop.
Photo "iPod Touch in 30 Minutes" by Ian Lamont. Used under
a Creative Commons Attribution 2.0 license.
Americans are nothing if not entrepreneurial. If there’s an opportunity out there to make a buck a new way, or by doing an old way in a less expensive or more convenient way, somebody somewhere is going to seize it. It’s happened with phone service, TV service, shopping, dining out, newspapers, air travel, and dozens more. Now it’s happening with ground transportation.
We live in challenging economic times. I think it’s fair to say that most people have an eye out for ways to make some extra money. Some new services have popped up to give them the chance to do that. Take the following ingredients:
- People in large cities who need to get around but who don’t own cars
- Taxicabs cruising the streets of these cities
- The number of people wanting rides at any one time exceeds the number of available taxicabs
- Other people who need extra money and who just happen to own cars
Stir them together and you get a classic market situation in search of a solution, and that solution has arrived in the form ridesharing services. Three of the most popular are Uber, SideCar and Lyft.
Uber is actually an application installed on an iPhone or Android smart phone. It uses GPS technology to identify the user’s location. The user selects a vehicle type and presses a button to request a ride. The app searches for available nearby drivers and directs them to her location. The app informs her of the driver’s progress toward her location. The car pulls up, she gets in, the driver takes her to her destination, the charge is billed to her credit car, PayPal account or Google Wallet, and she goes on her way. She doesn’t even have to worry about a tip. The driver gets something in the neighborhood of 80 percent of the fare.
The rates vary by city, traffic, weather and other factors. Uber fares have reportedly skyrocketed when people are desperate for a ride. They call it “surge pricing.”
Who are the drivers? Well, if you’re an insurance agent, take a look at your list of personal auto insurance clients. Chances are at least a few of them drive for Uber. Its service is available in New York City; Rochester and Buffalo are on the list of cities where individuals can apply to become drivers. Uber claims to “conduct a rigorous screening process to verify that every driver is insured and legally qualified to drive.” Good to know. As insurance professionals, however, the question we should be thinking of right now is, “Are they really insured?”
The ISO Personal Auto Policy (PP 00 01 01 05) states in the Exclusions to the Liability Coverage, “We do not provide Liability Coverage for any ‘insured’: … (f)or that ‘insured's’ liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance.” This provision does not apply to car-pooling arrangements, but Uber and the like do not appear to be at all like normal car pools. New York courts have upheld policy provisions that exclude coverage when a personal auto insured is driving people around for hire (see Halloway v. State Farm Insurance Cos., 2005.)
There is an ISO endorsement that amends this exclusion – Extended Non-Owned Coverage – Vehicles Furnished or Available for Use as Public or Livery Conveyances (PP 13 05 01 05.) I don’t know, however, how willing underwriters are to attach it.
Ridesharing services are just one more example of how technology is giving people money-making opportunities they never had before. If you serve an area where these services are available, you would be well advised to start asking your clients whether they drive for them. I’ll bet most of them who do just assume that their insurance policies cover them. The wrong time to find out otherwise is after a fatal accident.
I want to give a shout out to Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA CPIW, my counterpart at the Massachusetts Association of Insurance Agents. She published an excellent article on this topic last month for the MAIA’s Tech Talk newsletter; that article was the inspiration for this post. The article is not freely available on the MAIA Web site, but I have her permission to distribute it to my readers who want copies. Drop me an email if you’re interested.