Memo to adjusters: How not to act

In my last post I discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. That case is a primer of how an insurer can get slapped with 93A damages.

An adjuster should not find that liability is unclear by:

1. ignoring the transcript of a 911 call in which the insured driver stated that he fell asleep at the wheel and hit the other car;

2. ignoring the statement made to the insurer by the father of the driver that the driver fell asleep at the wheel;

3. relying on photographs of a vehicle taken after the vehicle has been repaired as proof that there was no contact between the two cars; and

4. relying on the driver's statement that he did not cause the accident, made when he is facing criminal charges for operating to endanger and based on leading questions by the adjuster.

When Do You Report Claims?

I just read an interesting article written for insurance agents on when to report claims to insurance companies.

In 750 words the "insurance expert" said to report all claims. (So much for succinctity!)

My advice to insurance buyers:

-Anytime you may have injured someone or damaged their property, report the incident.

-Anytime someone threatens to sue you, report the incident.

-Anytime you get a letter from an attorney about an event, report the incident.

-If your property is damaged and the amount is minor (less than 2x your deductible) assess your possible loss in its entirety - including the impact the claim has on your other expenses and income and decide if you want this on your loss record. I do not counsel reporting small losses. I also advise my clients to buy high deductibles.

Insurance people will argue with my last point. Oh well.

Don't Let Insurance Lapse In Tough Times

(NAPSI)-In a recent study, 5 percent of consumers said they were planning to cancel or reduce their insurance to help make ends meet. Advisors warn this short-term savings could be disastrous in the long run.

When it comes to protecting your family's financial future, life insurance plays an important role. With the job market rocky at best, if the breadwinner in your family gets laid off, the loss of income will affect the entire family. What would that family do if that person dies? A big fear for many American families is the death of a wage-earner or caregiver, leaving the surviving family members unable to cope financially. Life insurance offers peace of mind through immediate financial protection for dependents.

Life insurance enables individuals and families from all economic brackets to maintain independence in the face of financial catastrophe. It is important during uncertain times that you consult a life insurance agent to make sure your family is protected.

Life insurance premium: If you cannot pay?

Author: P.V. Subramanyam
When an insurance adviser approaches us, we are normally not in too much of a mood to buy life insurance! However, his persuasion (perhaps our awakening!) makes us buy a life insurance policy. This is not a great product - we hardly get any ``personal satisfaction`` buying this product. We are now motivated enough to make the payment. Sometimes the motivation lags! Or we are not convinced that the life insurance was a necessity…so we become lax.

Unexpected expenses can catch you short at times. There comes a day when the kids need braces, the car needs a new transmission, the wife needs a new car (oops sorry!), the floating rate EMI has increased, the college bills come due or there`s a medical emergency. Sometimes it is the Options trading which has cleaned out your account. Sometimes it is the marginal call from your broker! Out-of-the-ordinary expenses can tip the budget out of balance and leave you searching for ways to keep your income and outgo in sync.

Then your life insurance premium notice arrives. What do you do?

It`s good to know the possible consequences of not making a premium payment on your life insurance policy. The effect depends on the type of policy and coverage you have and the policy terms and conditions. With a term policy, if you stop paying premiums, your coverage lapses.

With endowment policies, many types of contracts allow you to decide to allocate cash value to pay premiums. Depending on the policy and amount of cash value, the result could be a significant reduction in cash value over time, decrease in death benefit and, finally, policy lapse.

Some policies (like Unit linked endowment plans) are designed with flexible premiums, so that policy owners have the option to pay more or less than the recommended premium or to skip premiums from time to time. Even with these policies, however, policy owners should check with their agents before suspending premium payments for extended periods because there must be enough cash value to pay the monthly charges to prevent a policy lapse. Sadly thanks to some aggressive companies and their agents many of us believe that a Unit Linked Endowment policy will be permanently available to you even if you pay premium only for 3 years. This is wrong.

The biggest concern: If you stop paying premiums and let your policy lapse, you would lose valuable protection, possibly leaving your family at financial risk.

Very often, life insurance is the link that can complete your estate if you die prematurely. Death benefit proceeds from a life insurance policy can provide the liquidity to settle final expenses, pay the college fees, pay off debts and - at the very minimum - give surviving family members ``breathing room`` to adjust. (It takes a long time to adjust to the cash flow suspension)

Other concerns: If you want to obtain new coverage later…

You will likely pay more for the same coverage. A key factor in premium rates is your age. The older you are at the time of issue, the higher your rate will be. In short, if you need to buy coverage later, letting your policy lapse now could cost you more money in the long run.

You may not be able to get coverage again …at any price. If you experience health problems, you could become uninsurable. Under your existing coverage, changes in your health do not affect your premium. However, if you let your policy lapse and then apply for new coverage later, your health changes can mean the coverage would cost more (if you are rated as a substandard risk) …or you could be denied altogether.

There could be tax implications if you actually cancel coverage and take the cash value. That`s because any cash value in your policy has accumulated on a tax-deferred basis. However, if you terminate your policy and take the cash value (not the same as policy loans, which are generally not taxable), a portion of the cash value could be considered ordinary income and be taxed at your current tax rate.

Before you decide to skip premiums or let your policy lapse, ask yourself these questions:

Why did I purchase this policy? Was it to help protect my family`s future by replacing my income if I died prematurely? Make sure education funds are available for my children? Retire the mortgage or pay off other debts? If these goals still exist, do you want to jeopardize your life insurance?

Have my needs or situation changed? Have I added to my assets by borrowing more money? Has my spouse quit his / her job? Do I need less coverage? More? If so, you should consider adjusting your coverage. Let your agent know. There are a number of viable options you can pursue that will enable you to keep your protection in force without putting your current finances under undue stress.

What are my alternatives? You have a number. For example, if you are paying an annual premium, perhaps you would find it easier to budget for a quarterly or monthly premium. Or you might consider a monthly bank deduction. The point is that you do have options. Exercise it.

No other financial product delivers the value and advantages of life insurance in the same exact way. If you are unsure about being able to pay a premium, be aware that there are many alternatives to help you keep your life insurance coverage intact, even during demanding financial times.

P.V. Subramanyam is a financial domain trainer

Making the case for life insurance

Clay Dangerfield
Many people realize the need for life insurance but keep putting it off until it is too late.
You may think that life insurance is confusing, expensive and complicated. You may think you don't know enough to make the right decisions for you and your loved ones. But, postponing this decision leaves you and your family exposed financially.

Assumption No. 1: I will always be able to buy life insurance.

Reality No. 1: You could develop a health condition that makes you uninsurable or could make life insurance too costly for you.

Assumption No. 2: I will get life insurance later, when I am older or have a family.

Reality No. 2: Life insurance is needed at all stages of life. Whether married or single, male or female, with children or without, you may have financial obligations that need to be met. In short, if you have a loan and don't have enough to pay the loan off, then it is wise to carry life insurance. Life insurance provides financial security for you and your loved ones.

Assumption No. 3: My family and I are covered by the group insurance at work.

Reality No. 3: To meet the future needs of your family, you need to have at a minimum seven times your annual income. Most group term insurance amounts offered by employers will not meet this need. And, when you don't work for that employer any longer, you usually lose that coverage. If you develop a health condition between jobs than you could become uninsurable.

Assumption No. 4: Life insurance is too expensive

Reality No. 4: It is too expensive to not have life insurance. Plus, life insurance rates have become more competitive as people are living longer.

Assumption No. 5: My husband has life insurance so I don't need it.

Reality No. 5: Women often live longer than men. There are countless stories of men who had to shoulder the family financial burden along with the emotional burden after their wife passed away.

Assumption No. 6: My family can cover funeral and burial expenses.

Reality No. 6: Burying a spouse or loved one is the most stressful time in a family's life. Having life insurance reduces financial concerns for the family.

Assumption No. 7: I am a stay-at-home mom or dad so I don't need life insurance.

Reality No. 7: Just because you don't bring home an income doesn't mean you should go without life insurance. In fact, if you add up what a stay-at-home mom or dad does, they are worth in dollar figures more than you think. Try telling your boss that you will have to arrive at work late and leave early so that you can get your children to school.

Take the time now to review your needs and provide adequately for yourself and your family.

For more information or to review your current plan, seek an agent who you know and trust.

Clay Dangerfield is married with three children, an Eagle Scout, and a business owner.

Pirate Insurance

(I can't claim this joke - sent to me by a reader - unknown author)



After many years at sea, a pirate decided to retire. Since he had suffered injuries on the job, he thought that he should collect on his worker's compensation insurance. He had a wooden leg, a hook where his right hand should be and a patch over his right eye.



The agent assured him that he would be compensated if the injuries were work related. "How did you get the wooden leg?" asked the agent.



In a booming voice the pirate replied, "Me and me mates were on the high seas when the boom swang 'round and knocked me into the sea where a shark bit off me leg."



The agent replied, "That is certainly work related. How did you lose your hand?"



"Well matey, me and me mates were on the high seas when the boom swang 'round and knocked me into the sea where a shark bit off me hand," said the pirate.



"That's also work related. Now how did you lose your eye?" asked the agent.



The pirate replied, "Well matey, I was laying on the deck one balmy day catching some rays when this seagull flew by and dropped his duty right in me eye!"



"What does that have to do with the loss of your eye?" said the agent.



"Well, y'see," he replied, "It were the first day with me hook!"

Superior Court holds that insurer's demand for release of 93A/176D claim in exchange for settling underlying case violates 176D

In last month's Superior Court decision in Sterlin v. Commerce Insurance Company the insurer, Commerce, made an offer to settle of an automobile accident claim contingent upon receiving a release of its own liability for violation of Mass. Gen. Laws ch. 93A and 176D.

Judge Tucker held that such an offer was in itself a violation of those statutes. He wrote, "By seeking a release of itself upon the payment of its insured's benefits to the claimants, Commerce was in effect seeking to have the insurance coverage afforded to its insured, Mukesh Patel, cover its own liability to plaintiff for any statutory violations. Although the statute does not specifically define such actions as unfair claims settlement practices, it does set forth in § 3(9)(m) that it is a violation and an unfair claims settlement practice by 'failing to settle claims promptly . . . under one portion of the insurance policy coverage in order to influence settlements under other potions of the insurance policy coverage.' In a like manner, this court believes that an insurer's attempt to settle its own claims against itself by the payment of its insured's liability benefits is likewise a violation of the statute and an unfair or deceptive act or practice under G.L.c. 93A."

Million Dollar Consultant Hall of Fame

I'm proud to announce that I have been inducted into the Million Dollar Consultant Hall of Fame by Dr Alan Weiss, the original Million Dollar Consultant®.

I am the first insurance / risk management consultant to be so honored out of the 20 members inducted since 2006. Worldwide, six other consultants have been added to the Hall of Fame this year.

Weiss has over thirty years of experience working with top companies such as Merck, GE, and Mercedes Benz. He also works with some of the best consultants in the world and singles out those he sees as particularly talented.

To quote Dr. Weiss, "These consultants are regarded by peers as being among the world leaders in consulting, as evidenced by empirical accomplishments in client results, professional contributions, and intellectual property."

This month marks my ninth year as an insurance consultant. July marks my 30th year in the insurance business. This award is a highlight for me. It is recognition by my peers that my work is of value.

SJC holds prevailing insurer not entitled to attorney's fees when it establishes another insurer's duty to defend

From my best source, Mike Tracy at Rudolph Friedmann LLP comes a decision issued today by the Supreme Judicial Court of Massachusetts:

As I have discussed in a previous post, an insured is entitled to recover attorney's fees and expenses incurred in successfully establishing in a declaratory judgment action that an insurer has a duty to defend.

In John T. Callahan & Sons, Inc. v. Worcester Ins. Co., the SJC held today that that rule does not apply when the insured's attorney's fees in the declaratory judgment action are paid by a second insurer.

Callahan was a general contractor on a construction site and was insured by Zurich. NEAC was its subcontractor, and was insured by Worcester. Callahan was an additional insured on the Worcester policy.

Lagoa, an employee of another subcontractor, was injured at the job site. He sued Callahan. Zurich agreed to defend and indemnify Callahan. Worcester refused to defend Callahan.

Callahan and Zurich brought a declaratory judgment action against Worcester, seeking a declaration that Worcester had a duty to defend and indemnify Callahan. Zurich paid the attorneys in the declaratory judgment action on behalf of itself and Callahan. Zurich and Callahan won the declaratory judgment action. Zurich sought reimbursement of the attorney's fees it incurred in the declaratory judgment action.

The SJC denied the claim for attorney's fees. It stated that the policy reason for awarding attorney's fees to insureds who are successful in establishing a duty to defend is not to punish wrongdoers or reward those who act responsibly. Rather, it is to protect the insured's right to receive the full benefit of its liability insurance contract. The court stated that Callahan received that benefit at no cost to itself because Zurich defended it.

Rather disingenuously, the court stated that Zurich also received a benefit from bringing the declaratory judgment action, because it received a judgment that Worcester reimburse it for one half of the settlement amount and attorney's fees in the underlying action. The court does not address whether that amount was more or less than the attorney's fees incurred in the declaratory judgment action.

Do-It-Yourself Insurance Consulting

I know that, in these tough economic times, not every business owner wants to spend the money for an insurance consultant.

There still are coverage and premium questions though.

I'm in the final stages of my new Insurance Coverage Toolbox. It's a workbook of issues, ideas, and questions that will help you understand your insurance coverage. Going through the materials will give you the information you need, as a business owner, to judge your business insurance program and the quality of your insurance agent.

I'm offering the electronic (PDF) version at a pre-publication price of $79. After April 15th the price is $99. Bound copies will also be available.

Money Back Guarantee – If this tool does not meet your expectations just email us with the reasons why within 7 days. We'll provide a full and immediate refund. (Insurance agents, insurance consultants, or insurers are not eligible for a refund.)

I'm also offering a special Bank Insurance Audit Toolbox. Same idea as above, but for banks.

Visit My Insurance Book Shop For More Information.

WC Rate Rankings Published

Every year the Oregon Department of Consumer and Business Services puts out a report ranking workers' compensation rates for all 50 states.

The latest report can be downloaded here.

Much of the info is specific to Oregon. However, in their work they provide a great deal of info on each state.

Here are the 10 most expensive states for work comp:

Alaska

Montana

Ohio

Vermont

Maine

Delaware

Kentucky

Alabama

Oklahoma

New decision on collapse

I posted recently on the meaning of "collapse." The Massachusetts Appeals Court has issued an unpublished decision affirming that "there are no degrees of collapse."

In 529 E. Broadway Condo. Trust v. Vermont Mut. Ins. Co., an unpublished decision of the Massachusetts Appeals Court, condominium owners asked their all-risk insurer to cover the cost of structural repair when an outside brick wall was detaching from the building. The insurer's investigator concluded that the problem was a result of water infiltration.

The court held that the detaching wall did not meet the definition of collapse, which, as established by case law, includes "both a temporal element of suddenness . . . and a visual element of altered appearance that comprises a structural collapse, distinct from the degenerative process causing the collapse."

COBRA Subsidy Under American Recovery and Reinvestment Act of 2009

COBRA requires that terminated employees are able to continue their health insurance for 18 months.  The recent stimulus bill includes a subsidy for involuntarily terminated employees.

The IRS has published info on how the COBRA subsidy will work for employers.

The subsidy pays 65% of COBRA premiums for employees involuntarily terminated from employment between 9/1/08 and 12/31/09.

Employers receive reimbursement using form 941.

U.S. Court of Appeals points out that duty to defend is determined by allegations of the complaint

In Narragansett Jewelry Co., Inc. v. St. Paul Fire and Marine Ins. Co., 555 F.3d 38 (1st Cir. 2009), the United States Court of Appeals for the First Circuit court reaffirmed that the "eight corners test" still determines the duty to defend under Rhode Island law.

Slane was a jewelry design company that contracted with Narragansett to develop jewelry models and molds based on Slane designs, and to produce jewelry ordered by Slane.

Slane sued Narragansett, alleging that Slane "owned certain models which it entrusted to [Narragansett] for use in the production of jewelry," and that Narragansett "caused physical damage to such models."

Narragansett sought defense and indemnity from its insurer, St. Paul. St. Paul denied coverage based on an exclusion for property damage to "[p]ersonal property that's in the care, custody, or control of [Narragansett]."

Narragansett filed a declaratory judgment action in Rhode Island. It argued that the alleged loss or damage "possibly" occurred during the shipment process, and thus not while the models were in Narragansett's care, custody or control.

The United States Court of Appeals for the First Circuit affirmed summary judgment for St. Paul, stating, "Regardless of what might be 'possible,' there are no allegations in the Slane lawsuit that support Narragansett's hypothesis." The court pointed out that the complaint specifically alleges that Narragansett caused the damages at issue.

United States District Court interprets strictly exception to doctrine of implied coinsurance

Mike Tracy of Rudolph Friedmann LLP brought to my attention a recent case in which the United States District Court for the District of Massachusetts applied the implied coinsurance doctrine.

The implied coinsurance doctrine states that a residential tenant is an insured on a landlord's insurance even if the policy does not state that the tenant is an insured. Under that doctrine, a landlord's insurer is barred by the anti-subrogation rule from seeking reimbursement from a tenant for damages caused by the tenant. (The anti-subrogation rule bars an insurer from seeking from its own insured reimbursement of funds the insurer paid on a loss.)

In Fed. Ins. Co. v. Commerce Ins. Co. Roberts, a resident of Kimball Farms retirement home, negligently started a fire in her unit. The lease stated that any loss or damage to property owned by Kimball Farms will be paid for by Roberts, and that Roberts releases Kimball farms from all liability or responsibility for injury or damage to her personal property not caused by Kimball Farms or its employees. It also stated that Roberts "shall have the responsibility of providing any insurance desired to protect against such loss."

Federal Insurance Company insured the retirement home and paid the damages resulting from the fire. It sought to recover that amount from Roberts. The court held that it was barred from doing so by the implied coinsurance doctrine.

The court noted an SJC decision stating that the implied coinsurance doctrine does not apply where a provision of a lease expressly establishes "a tenant's liability for a negligently started fire." It interpreted that phrase literally, holding that since the lease did not discuss fire specifically, the exception to the implied coinsurance doctrine did not apply.

The court also held, sensibly, that the fact that Roberts purchased insurance was irrelevant to the application of the implied coinsurance doctrine.

Ten Simple Things You Can Do To Manage Risk and Cut Your Insurance Premiums

1 - Email your agent - tell him that you expect that he will meet with you 120 days before your policies expire and that he will have a renewal quote to you 30 days BEFORE expiration.

2 - Test your computer backup system - tell you techies that they will delete a file in front of you and restore from the backup.

3 - Every 6 months look at a complete list of all your losses. Ask the adjusters what they have done to resolve the claims and what they plan to do.

4 - Increase your property deductibles and don't turn in small property claims.

5 - Resolve to document every action you take with an employee that could lead to a future problem. If you reprimand, write it down.

6 - Invite your underwriter to visit your operation - get your agent to bring your underwriter to see you. Build a relationship.

7 - Email employees to remind them of your policy regarding damage to personal vehicles while on company business.

8 - Have your attorney review your employment policies. Eliminate any policy that is not being followed.

9 - Take a tour of your locations and video tape what you see. Store the video in case of fire - so you can show the adjuster what the place was like.

10 - Get an unbiased review of your coverage by an insurance consultant.

Incident Reports Help With Risk Mangement

My Dad had eye surgery last week. After the operation, as he was resting, a nurse gave him a cup of coffee - well, she tried to.  She spilled it on him.

After she was sure he was OK and she cleaned up the mess, she went to her work station to complete an incident report.

How do you log unusual events in your company?

While spilled coffee is not a big deal, if my Dad had reacted differently he could have caused a problem in his just-operated on eye. The nurse was right to log the event.

Incident reports can help with several risk management objectives. First, they document the actual event in detail allowing for a reference at some future date if a lawsuit or claim is filed.

Second, reviewing logged events can lead to the uncovering of trends and the development of procedures that prevent future events.

What kinds of events should be logged? Anything that is unusual, that might need to be referred to in the future. Further, log events where an injury did not occur but could have. Accidents where nobody is injured can lead to preventing future events.

In some cases pictures of the scene can be helpful.  In several of my books and other posts I have recommended disposable cameras in vehicles and at all company locations.  They are too cheap not to have available to document events and accidents.

Spring Thaws and Flood Insurance

Maine's Insurance Commissioner recently reminded us that spring thaws are coming.

With the 30 day waiting period for the purchase of flood insurance, the time to buy coverage is now.

For the 4,345th time...

Flood is not a covered peril on homeowners policies and most business property insurance policies. To be covered for flood you must buy a flood insurance policy.

The meaning of "collapse"

This has been a great winter for taking my kids sledding. But the snow is not so fun when its weight is bending the roof of your building. And it's even worse if your insurance doesn't cover the damage.

Policies with coverage for property damage may insure “against the risk of direct physical loss or damage involving collapse of a building or any part of a building” due to causes including the "weight of ice and snow or sleet.” “Collapse” is an undefined word in the policies.

Nationally, the cases discussing collapse coverage generally fall into one of three camps. The narrow view is that the coverage is limited to the actual falling down of a covered structure. The broad view is that any substantial structural impairment that threatens collapse comes within the coverage. A "moderate" view is that the coverage includes the threat of imminent collapse.

Massachusetts courts take the narrow view. In Dreiblatt v. Trustees of the Shipway Place Condominium Ass’n, 264 F.3d 126 (1st Cir. 2001), a building suffered roof damage as a result of a heavy snowstorm. The United States Court of Appeals for the First Circuit held that under Massachusetts law, “collapse” requires three elements: “suddenness, a perceptible change in appearance, and completeness.” Where the damage consists of the outside walls leaning inward, cracks appearing in the ceilings and interior walls, and a two-inch drop in the roof as a result of faulty design combined with the weight of snow, no collapse has occurred. Driscoll v. Providence Mut. Fire Ins. Co., 69 Mass. App. Ct. 341, 345 (2007).

AIG News and Moves

I've received several calls today from reporters wanting to talk about AIG.  

The recently reports about a new government loan program have not changed my position on how insureds should tread AIG policies.

I continued to take a wait-and-see approach. As AIG programs are coming up for renewal I am suggesting that we obtain competitive proposals from other insurance companies. We will review the AIG proposal alongside the quotes from other companies.

In the consideration of which insurance company to move forward with, AIG's financial situation will certainly be a factor.

The fact remains that all of the most commonly used rating agencies continue to hold a rating above my minimum standards. A.M. Best rates of AIG as an "A."  TheStreet.com (formerly Weiss ratings) shows most AIG companies in the "B" range.

I see no reason for hasty moves or panic.