INSURANCE NEWS                                                                                          December, 2007

Top Insurance Stories in 2007 in East

New leaders tackled old issues and the region battled fire and rain.

1. No day at the beach
Insurance markets for coastal properties continued to challenge insurers, agents, policymakers and property owners, despite an inactive hurricane season. For the most part, while policymakers debated, private markets went about their business.

Insurers writing in the Atlantic and New England states boosted premiums for coastal homes and began requiring owners to modify their homes to prevent storm damage or dropped insureds altogether. Carriers also expanded their definitions of hurricane risk to encompass homes miles from the coast.

In Connecticut, agents fielded complaints from coastal home owners who were told they had to install storm shutters. Most felt these steps were reasonable, but Attorney General Richard Blumenthal drafted legislation to block insurers from requiring shutters as a condition of insurance.

Maryland lawmakers dabbled with the idea of requiring insurers writing anywhere in the state to write in all areas -- including the coast -- but eventually rejected the idea.

For the second year in a row, the Massachusetts FAIR Plan requested a 25 percent rate increase for Cape Cod home insurance premiums. Massachusetts insured coastal properties are valued cumulatively at around $700 billion. Only three other states —Florida, New York, and Texas — are at greater financial risk in this regard.

Rhode Island prepped for the worst hurricane to ever crash into New England — on paper at least. About 250 federal emergency management officials staged a response to the fictional "Hurricane Yvette," from a "storm center" in Providence. The leaders of a special Rhode Island House commission introduced legislation aimed at protecting coastal homeowners from "unreasonable" rate hikes or from having their policies canceled because of their location near a coast.

New York lawmakers heard from constituents and agents, especially on Long Island, that the already tight coastal market was getting tighter. Insurance companies claimed the market was fine and urged public officials to refrain from intervening, but agents called for action, including making permanent the state's residual property insurer, the New York Property Insurance Underwriting Association

Insurance Journal - December 31, 2007

2nd LI county passes ``social host'' law aimed at underage drinking

It is now a crime for adults living on Long Island to let other people's children drink in their homes.

Suffolk County Executive Steve Levy has signed into law "social host" legislation that makes it illegal for homeowners or renters 18 and older to knowingly allow underage drinking.

Nassau County enacted a similar law in July.

Newsday - December 30, 2007
 

Brokers Challenged To Adapt With New Compensation Incentives

Despite the recent controversy over contingent commissions, consultants believe incentive payments play an important role in the insurance industry in promoting a company’s interests and helping a carrier to differentiate itself from its peers.

In a Webcast last week entitled “Contingent Commissions: Growth and Distribution for Insurance Companies,” members of Deloitte Consulting discussed contingent commissions and why they remain an important sales tool for the industry.

Howard Mills, chief advisor for the firm’s insurance industry group, and former New York insurance superintendent, said the primary concern among regulators when it comes to contingent commissions is transparency.

“Regulators want to know insurers have their client’s interests at heart,” he said.

Edward S. Koral, senior manager with Deloitte Consulting, said the controversy that developed over contingent commissions following allegations of bid-rigging turned out to be a good thing on one level--it created a healthy dialogue about the purpose of contingents and the service brokers provide.

However, some brokers are still dealing with the loss of contingent fee income as part of settlements with regulators and state attorneys general, which has had a negative effect with the loss of revenues and jobs. Some continue to look at consolidating operations or divesting portions of their firms, he added.

While an unlevel playing field exists, because most brokerages still accept contingency fees, there does not appear to be any move being made to ban such compensation altogether, noted Mr. Koral.

In fact, he said there is evidence that some carriers that once shied away from contingents are now moving back toward the idea. The real challenge is maximizing disclosure and minimizing any pontential conflicts of interest.

“You can find a conflict of interest in anything. It’s just a question of how you manage it,” he observed.

Contingents are a force for motivation and influencing a carrier’s strategic goals, according to Michael Vaccaro, senior manager with Deloitte.

The loss of contingents lessens a carrier’s leverage with a producer, and limits a carrier’s ability to differentiate itself from its peers, he said. Taking incentives away, he continued, actually hurts the relationship with producers and denies the carrier the ability to “drive strategic behavior in the marketplace.”

National Underwriter - November 27, 2007

President Signs TRIA

President Bush today signed the Terrorism Risk Insurance Act extending the federal backstop on terrorism risk insurance until the end of 2014.

The bill (H.R. 2761 – The Terrorism Risk Insurance Program Reauthorization Act of 2007) extends the current program through 2014 and adds coverage of domestic terrorist events to the program.

The bill, passed by the Senate on Nov. 16, was passed by the House on Dec. 18 after an acrimonious floor debate during which the Democratic leadership of the House railed against the lack of communication that body had with the Senate—and vowed to revisit the issue in 2008.

Specifically, during that debate, Rep. Gary Ackerman, D-N.Y., announced he was introducing legislation designed to increase terrorism risk insurance capacity for properties in urban areas seen as prime terrorism targets where there is currently a shortage of such capacity available, even with the current TRIA program in place, the so-called “reset” provision.

That provision was in the bill passed by the House but eliminated from the Senate version, and will be the subject of House Financial Services Committee hearings next year, according to Rep. Barney Frank, D-Mass., chairman of that committee.

National Underwriter - December 26, 2007

Insurable Interests and Interests Insured in Property Insurance

John Doe and three partners purchased a building for $100,000. Each partner had an equal $25,000 ownership. Mr. Doe took out a property policy to insure the building, and his name appears as sole named insured. No other interests are identified in the policy. The building burns, fire is an insured peril, and the loss is considered total.

The insurance adjuster agrees the value of the loss is $100,000. Mr. Doe receives a $25,000 settlement check from the insurer. Whether the policy limit was $25,000 or $100,000, has Doe received an equitable settlement from the insurer? Yes, as his insurable interest in the building was $25,000: 25 percent of $100,000.

What about the three other partners? Unless each was a named insured in this property policy, there would be no coverage for them. While they did have an insurable interest in the building, their interests were not identified—only John Doe appeared as a named insured. Could this situation happen? Yes.

Many risk management professionals spend considerable time on coverage comparison and premium negotiation but spend insufficient time understanding the appropriate interests to be insured in a property policy. Since Doe had insured the building for $100,000, he and his partners may attempt to convince the insurer to correct the policy and add the other interests after the loss. The insurer may take the position that it underwrites not only the pre-loss exposure characteristics of the building (i.e., construction, occupancy, protection) but the moral character of the owners as well. An attempt to reform the policy after loss is an arduous, expensive task and one ripe for failure. In this example, let's assume the three partners are left uninsured due to lack of named insured status. How did this happen? Mr. Doe and partners forgot to think of the "who" when building insurance was first considered.

IRMI - December 2007

 

Car Hit By Ice? You Might Have to Pay for Repair: Since Drivers of Vehicles Shedding Missiles Often Don't Stop, It Can Be Impossible to Bill Them.

Allison Shupp felt like a victim twice this week.

First, a chunk of ice broke off the roof of a van and smashed into the windshield of her 2005 Nissan Altima on Monday as she drove east on Route 22 in Bethlehem.

Then, she learned she might have to pay for part of the damage.

Her insurance company is investigating the accident, said Shupp, of Catasauqua. For now, she must pay the deductible on her insurance policy, which will cover the rest of the cost of repairs.

Damage done by flying ice often isn't like damage from other kinds of auto accidents. Normally, both drivers involved in a crash stay at the scene and a police report can determine who was at fault. That driver's insurance would then cover the damages.

But when the damage is caused by flying ice, the driver at fault might not even know an accident has happened, said Rosanne Placey, a spokeswoman for the Pennsylvania Department of Insurance.

"Sometimes, they really don't know," Placey said, "[or] they don't care and they just keep moving on."

Allentown Morning Call - Dcember 21, 2007

Coastal Homeowners Insurance – The Capacity Crunch

As the property/casualty market overall softens, the market for homeowners insurance in coastal areas has gone in the opposite direction. The active hurricane seasons of 2004 and 2005 changed the playbook for insurers with respect to covering homes in areas at risk for hurricanes. But for insurance purposes, these homes are no longer only located along the Gulf Coast, or in Florida, or even in the Carolinas. Now coastal homes all the way up to New England are considered at risk.

Insurers have taken several measures to reduce their exposure in these areas, and that has led to some disruption in the marketplace. Consumers are having their existing coverage non-renewed and are seeing their premiums rise significantly when they seek coverage elsewhere. Agents are having difficulty securing markets and are left to explain the current realities of the marketplace to their customers, and legislators and regulators, after hearing complaints from the public, are taking a variety of measures in an attempt to solve what many of them consider a crisis.

Insurance Advocate gathered representatives from different interests within the insurance industry, from analysts, to agents, to insurance companies. Just as Insurance Advocate addresses national issues from a regional perspective, this roundtable panel discussed the national issue of covering hurricanes and other disasters, and also the effects of the current market on the tri-state region.

Additionally, we have included results from a coastal homeowners survey conducted in October, in which we asked our readers some general questions about the state of the market.

Insurance Advocate - December 21, 2007

 

Allstate policy reversal requires homeowners to drop lawsuits

The agreement between Allstate insurance and state insurance regulators announced earlier this week is a victory for consumers.

It allows homeowners who had Allstate insurance, but were dropped by the insurer because they didn't have other lines of insurance, like auto, with Allstate to renew their old policies.

But there's a snag. The 55,000 New Yorkers eligible for new policies with Allstate will have to give up their right to sue the insurance giant. Two class-action lawsuits, both filed in September, seek cash payouts. Allstate, the largest homeowner insurer in the state, has about 25 percent of the market on Long Island.

"Consumers should be aware that by accepting this offer they will be releasing Allstate from any legal claims that they could have brought against the company for the termination of their earlier coverage," state insurance superintendent Eric Dinallo said in a statement.

In August, the Insurance Department issued a legal opinion that concluded Allstate's practice was illegal.

Regulators ordered Allstate and insurer Liberty Mutual to immediately end the practice or face civil penalties.

Plaintiffs in both lawsuits jumped on the Insurance Department's ruling as grounds for filing suit against Allstate.

Newsday - December 21, 2007

 

Nassau County Fraud Sweep Fingers 8 for Fraud

Eight suspects who allegedly committed more than $938,000 in workers’ compensation fraud against The New York State Insurance Fund (NYSIF) were part of a Nassau County fraud sweep announced on Monday following a year-long investigation by NYSIF, the Workers’ Compensation Board, the New York State Insurance Department and Nassau District Attorney Kathleen Rice.

Authorities took six suspects into custody on December 17: Scott Edvabsky, 37, of Levitown; Denise Betts, 47, of Farmingdale; Steven Wienckowski, 41, of Sound Beach; Vincent Catala, 41, of Syosset; Anthony Barbera, 38, of Huntington, and Richard Cosgrove, 53, of Bellrose. DA Rice issued arrest warrants for Costas Hatzinkontos, 41, of Astoria, and Jose Giron, 28, of Brentwood.

Charges against the suspects vary, ranging from grand larceny and insurance fraud, to offering a false instrument for filing, criminal possession of a forged instrument, falsifying business records, perjury, and violation of the Workers’ Compensation Law – all felonies

NYSIF - December 19, 2007
 

MARBLE HILL SECTION OF THE BRONX IS ACTUALLY PART OF NEW YORK COUNTY; VENUE MOTION GRANTED

Montesano v. New York City Housing Auth.  2007 NY Slip Op 09955  Decided on December 18, 2007 Appellate Division, First Department  ullivan, J.

The First Department has informed the Bar as to something that readers of the New York trivia website www.forgotten-ny.com already know: that Marble Hill, a neighborhood which is geographically located in the Bronx, is legally part of New York County.

"This appeal," wrote the Court, "from the denial of defendant's motion for a change of venue from Bronx County to New York County, presents the issue, the subject of a long-simmering dispute, of whether the area known as Marble Hill is legally part of New York County, as defendant contends, or Bronx County, as plaintiff argues. "

Rogak Report - December 20, 2007

S&P Takes Action Against 6 Bond Insurers

Standard & Poor’s Rating Service took ratings action against six bond insurers affected by the subprime mortgage crisis, and Moody’s announced that it placed subsidiaries of XL Insurance on review for possible downgrade.

Yesterday, S&P said it took the actions because of “worsening expectation for the performance of insurance nonprime residential mortgage-backed securities and CDOs (collateralized debt obligation) of asset-backed securities.”

The rating service said the six are expected to see claims and/or suffer rating downgrades that will affect their capital resources, making those resources insufficient at the current rating level.

There is also concern, S&P continued, that should any of the companies suffer a capital shortfall, they be able to raise capital or have a plan in place to do so.

ACA Financial Guaranty Corp. had its financial strength rating dropped from “A/Watch-Negative” to “triple-C/Watch-Negative”

Ambac Assurance Corp. found its financial strength rating of “triple-A” move from stable to negative.

The “triple-A” financial strength rating of Financial Guaranty Insurance Co. and FGIC U.K. Ltd. was placed on “credit watch negative” from stable.

MBIA Insurance Corp. and XL Capital Assurance “triple-A” ratings moved from stable to negative.

MBIA reacted to the news saying it was pleased S&P affirmed the company’s rating and that it is working on a capital management plan that will return the company to a stable outlook.

National Underwriter - December 20, 2007

Minivan Fender-Benders Can Be Costly

A minor fender-bender in a minivan can rack up thousands of dollars in repair costs, according to new crash tests conducted by the insurance industry.

Repairing damages to minivans involved in low-speed crashes of 3 to 6 miles per hour could range from $483 to more than $3,500, according to test results released Thursday by the Insurance Institute for Highway Safety.

The institute conducted a series of four low-speed crashes on six 2008 minivans.

The Nissan Quest had the most expensive bill for the minivans, costing $3,549 for a low-speed crash to the rear bumper. In the four tests, the Quest tallied $8,102 in combined damages.

The Dodge Grand Caravan had the lowest costs in one of the four tests, $483 for damage to the rear corner of the minivan. In all four tests, the Grand Caravan had a combined $5,495 in damages.

The Honda Odyssey had the lowest combined repair costs of $5,258 in the four tests. The Toyota Sienna cost $5,726 in repairs for all the tests, while the Chevrolet Uplander had $5,799 in expenses. The tests estimated $6,525 in damages to the Kia Sedona.

Tailgates on five of the six minivans -- except the Uplander -- had damage in the rear full-width test. Only the Quest and the Sienna required the tailgate to be replaced.

NY Newsday - December 20, 2007
 

Bush Gets Terrorism Insurance Extension Bill to Sign

The U.S. House of Representatives has passed an extension to the Terrorism Risk Insurance Act (TRIA) by a vote of 360 to 53 in a form closer to what the Bush Administration and the Senate would support than to an original House measure.

The legislation will extend TRIA for seven years and, its backers say, help spur the further development of a private market for terrorism risk insurance.

TRIA is now set to expire at the end of 2007 unless Congress acts again to extend the law. The measure will now be sent to President Bush for his signature and it is expected that he will sign the bill into law later this week.

The House legislation is the Senate amendment to HR 2761 (original House TRIA bill) and includes the following provisions:

* Domestic Acts of Terrorism: Incorporates domestic acts of terrorism;

* Duration: Extends TRIA for 7 years;

* Annual Liability Cap: Clarifies the $100 billion cap; requires Treasury to provide notice to Congress and promulgate regulations regarding the cap;

* Recoupment: Accelerates the timing of mandatory recoupment (recovering amounts paid by Treasury up to $27.5 billion); and

* Reports: Requires GAO studies of (1) insurance for nuclear, biological, chemical, and radiological terrorist events and (2) availability and affordability of terrorism insurance in specific markets.

Insurance Journal - December 19, 2007

Underwriting Deterioration Eating Into P-C Profits

The property-casualty insurance industry should once again show solid profits this year, but there are signs that underwriting gains are beginning to deteriorate, according to the latest survey of industry-wide results.

The figures were gathered by ISO and the Property Casualty Insurers Association of America and are consolidated estimates representing 96 percent of all business written by private U.S. p-c insurers.

Through the first nine months of 2007, p-c industry net income after taxes rose more than 7 percent compared to the same period for 2006, from $46.1 billion to $49.4 billion, according to the report.

The results, the groups said, were fueled by the industry’s net income, policyholders’ surplus (the insurer’s net worth measured according to Statutory Accounting Principles) that increased 7 percent, or $35.6 billion, to $521.8 billion.

However, the survey found some slippage in overall profitability measured by its annualized rate of return on average policyholder surplus that fell from 13.8 percent to 13.1 percent. Net gains on underwriting dropped 25.3 percent from $24.3 billion for the first nine months of 2006 to $18.1 billion for the 2007 nine-month period.

The combined ratio over the period worsened by 2.3, going from 91.5 over the first three quarters of 2006 to 93.8 for the first nine months of 2007.

Michael R. Murray, ISO assistant vice president for financial analysis, pointed out that the industry’s combined ratio of 93.8 is the second best for the first nine months since 1986. However, he said, for insurers to reach an average rate of return of 13.9 percent—the long-term average rate of return for Fortune 500 companies—the p-c industry’s combined ratio needed to be one point better.

In his commentary on the first nine months, Robert P. Hartwig, president of the Insurance Information Institute, said the first nine months “are generally excellent and so far have proven surprisingly resilient” in the face of the intense competition for business within the industry.

If the underwriting deterioration holds true to form as in past cycles, however, the industry’s return on equity will bottom out in 2011 at about 1- or 2 percent, and not become profitable again until 2015 or 2016

National Underwriter - December 19, 2007

ISO Files Forms To Comply With New Terror Backstop Law

The Insurance Services Office Inc. said it is filing new forms with state regulators that will be compliant with changes Congress has made in extending the law providing government payments to insurers after a catastrophic terrorism loss.

The Jersey City, N.J.-based ISO said it began today to submit form and rule filings that revise its terrorism programs in response to the reauthorization measure approved by Congress yesterday. The president is expected to sign the bill.

At the end of the year the current law is due to lapse. ISO Senior Vice President Kevin Thompson, noting the act’s Dec. 31 expiration date, said ISO has been closely monitoring Congressional action. “We recognize the need for prompt access to compliant products, and that is why we’ve geared up to file as quickly as we have.”

The new forms and rules will reflect the extension of the legislation for an additional seven years; revise the criteria for certification of an act of terrorism by eliminating the distinction between foreign and domestic acts; include an additional disclosure requirement; and reinforce the $100 billion cap on aggregate insured losses, among other changes.

National Underwriter - December 19, 2007
 

Insurers complain ads from Toyota incite fraud

State and national insurance officials say a Toyota Motor Corp. ad campaign is encouraging viewers to commit fraud.

The amusing ads suggest that drivers eager to buy a new Toyota should dump their old car by pushing it off the roof of a parking garage, dropping a steel beam on it, or chopping down a tree so it falls on the vehicle. In one ad, a family works together to roll a boulder off a cliff onto their car.

The Insurance Fraud Bureau of Massachusetts and the Coalition Against Insurance Fraud, a Washington group that includes insurers, law enforcement officials, and consumer groups, say the unspoken message is that an insurance settlement from the old car will help pay for the new Toyota. Both groups have sent letters to Toyota urging the company to pull the ads. Dennis Jay, the executive director of the Coalition Against Insurance Fraud, said he believed fraud bureaus in several other states and some insurers also plan to write Toyota. Toyota has issued no formal response to the groups.

"No one believes that these commercials alone will entice car owners into criminal behavior," Jay wrote in a blog on the group's website. "But there is a growing body of research that suggests an environment that tolerates acceptance of unethical behavior does influence some people to act unethically. And these commercials add to that negative environment."

Daniel Johnston, executive director of the Insurance Fraud Bureau of Massachusetts, said the only conceivable purpose for destroying your existing car, rather than simply trading it in, would be to collect insurance money to pay for a new car.

"Every scene that's described in the ads is a crime," Johnston said.

Boston Globe - December 19, 2007

Questions of Coverage: Snow Buildup

QUESTION: We have a policyholder with water damage under a Form 3. Considerable snow built up on his roof and he pulled it down with a rake and it piled up against his wall. Water melted from the snow pile and came in through his siding, damaging a side wall and the floor sheathing. The company raises questions of the water possibly being surface water and there is more than one incident of melting, with each day having a thawing and freezing cycle. It is thought that possibly snow that came off the roof would add to the stack, leaving the possibility of several occurrences. They also raised the possibility of lack of coverage by neglect in not removing the snow against the house, realizing that damage might occur. What are your thoughts?

ANSWER: The benefit of the doubt must go to the insured and provide coverage for the loss

Claims Magazine - December 18, 2007
  

Allstate Dropping Out of PCI

Allstate Insurance Company has given its year’s notice that it will be withdrawing from the Property Casualty Insurers Association of America as of 2009.

Both Allstate and PCI officials confirmed the decision, saying that Allstate has decided to do so “because it is well on its way to insourcing its government relations function, both at the federal and state level,” according to David Sampson, PCI’s new president and chief executive officer.

The bylaws of the trade group require that it give a year’s notice of plans to withdraw, according to both Mr. Sampson and Rich Halberg, an Allstate spokesman.

“We are members of state-level trade associations and will continue to utilize them,” Mr. Halberg said.

Allstate is also a founding member and strong support of ProtecingAmerica.org, a nonprofit organization which is advocating legislation which would allow states to create tax-free catastrophic reserve funds. PCI has been resolutely neutral on the issue.

National Underwriter - December 17, 2007

House passes 7-year TRIA extension

The House of Representatives gave its final approval to a bill that would extend the federal terrorism insurance backstop for seven years beyond its scheduled Dec. 31 expiration.

The 360-to-53 vote, which came Tuesday afternoon, clears the way for the measure to go to President Bush for his signature. In addition to extending the program, the bill calls for allowing the backstop to respond to catastrophic acts of domestic as well as foreign terrorism.

The measure, initially passed by the Senate last month, is far less expansive than a measure passed last week by the House. Among other things, the earlier bill would have added group life insurance to the lines of insurance covered by the backstop. The White House reiterated its threat to veto any measure more expansive than the Senate bill.

Business Insurance - December 18, 2007

Study: The Time it Takes to Settle Claims Impacts Customer Satisfaction

Customer satisfaction weighs heavily on the length of time it takes to repair damages for auto and homeowners insurance claims, according to a new industry study. Vehicles and home repairs fixed quicker yield better customer satisfaction results.

J.D. Power and Associates, headquartered in Westlake Village, Calif., studied auto and homeowner insurance claims based on 10,832 responses from customers who filed claims between August and September of 2007.
The inaugural study measured customer satisfaction with regard to the claims process examining claims settlement, servicing, first notice of loss, estimation process, repair process and rental experience.

The firm said two-thirds of the customers' vehicles were fixed and returned within 14 days. These customers averaged 843 on a 1,000-point scale of satisfaction. Thirty-six percent of all customers waited longer than two weeks for their vehicle to be repaired and the satisfaction-average dropped by 71 points.

The reported overall satisfaction averages among homeowner insurance customers paralleled the auto customers. When repairs took longer than initially anticipated, customer satisfaction averages declined.

"It becomes extremely important to manage customer expectations as far as how long it will take for their vehicle or property to be repaired or replaced," said Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. "Proactively contacting the customer, keeping them informed and explaining the process at each step can soften the impact of a particularly long claim process � enhancing customer confidence and satisfaction with their insurer."

Another key factor impacting customer satisfaction proved to be the number of people a customer must interact with throughout the claims process. Nearly 75 percent of customers contacted their local agency first. More than one-third of those customers were apparently redirected to an insurer or transferred to a call center. The study concluded redirected-customers tend to be much less satisfied with the claims experience.

Insurance Journal - December 18, 2007

NY: Allstate must allow coastal homeowner renewals

More than 55,000 coastal residents who were improperly dropped by Allstate in part because they did not choose to carry the company's car or life insurance policies will be given a chance to renew their contracts, state Insurance Superintendent Eric Dinallo said in a statement Monday.

The announcement follows Dinallo's ruling in August that the practice of linking a customer's eligibility for homeowners insurance to his choice of carrier on other policies is illegal.

"Allstate customers improperly denied the chance to renew their policies now have the right to choose if they want to stay with the company," Dinallo said in a statement.

Still, Allstate will continue to try to reduce its concentration of customers in coastal areas -- something it is legally permitted to do, Dinallo said. Allstate representatives have said that they plan to reduce coastal customers nationwide, including in New York, by refusing to renew some customers' policies.

"Insurance companies must be able to pay their claims when disaster strikes," Dinallo said. "They have the right ... to act prudently so their solvency is not threatened."

The issue of nonrenewal of homeowners' policies at both Allstate and Liberty Mutual was brought into the spotlight in Newsday reports in August. Liberty Mutual stopped the practice immediately after Dinallo deemed the practice illegal that month.

Newsday - December 17, 2007
Insurance Department News Release - December 17, 2007

 Pre-existing condition provisions in group and blanket disability policies

STATUTORY REFERENCE: Section 3234 of the Insurance Law (as added by Chapter 650 of the Laws of 1993)

On June 27, 2007, the Court of Appeals issued a unanimous decision in Benesowitz v. Metropolitan Life Insurance Company, 8 NY3d 661 (2007)1, a case that construes New York Insurance Law Section 3234(a)(2). That statute, entitled "Pre-existing condition provisions in group and blanket disability policies," reads as follows:

(a) Every group or blanket policy issued or issued for delivery in this state which provides benefits by reason of the disability of the insured and which includes a pre-existing condition provision shall contain in substance the following provision or provisions which in the opinion of the superintendent are more favorable to the members of the group:

(1) In determining whether a pre-existing condition provision applies to an eligible person, the group or blanket disability policy shall credit the time the person was previously covered under a previous group or blanket disability insurance plan or policy or employer-provided disability benefit arrangement, if the previous coverage was continuous to a date not more than sixty days prior to the effective date of the new coverage. The credit shall apply to the extent that the previous coverage or level of benefits was substantially similar to the new coverage or level of benefits; and

(2) No pre-existing condition provision shall exclude coverage for a period in excess of twelve months following the effective date of coverage for the covered person.

(b) Nothing herein shall be construed to prohibit or restrict an insurer from utilizing other forms of underwriting for the members of the group in lieu of, or in addition to, the pre-existing condition provision described in subsection (a) of this section.

In Benesowitz, the plaintiff, a new employee without previous creditable

NY Insurance Department Circular Letter - December 14, 2007

The I.I.I. Outlines What Winter-Related Damage is Covered by Standard Policies

Old Man Winter Arrives Early This Year Wreaking Havoc To Homes, Businesses and Vehicles

 Winter, which officially starts on December 22, has arrived early in many parts of the country, causing damage to properties and vehicles from sleet, ice and snow. Wet, heavy snow has caused collapsed roofs, porches, awnings, carports and outbuildings. A significant amount of damage has been caused from downed trees and limbs, according to the Insurance Information Institute (I.I.I.).

Winter storms are the third-largest cause of loss, resulting in about $1 billion in insured losses annually, said the I.I.I. Melting snow can inflict significant damage to property. From 1987-2006, winter storms resulted in more than $23 billion in insured losses. In March 1993, a 20-state winter storm caused a whopping $1.7 billion in insured losses.

Standard homeowners and business insurance policies provide coverage for a wide range of winter-related disasters such as losses incurred due to burst pipes, wind damage and wind-driven rain as well as damage caused by downed trees and limbs or other falling objects. Home and business insurance typically cover for "ice damming"—a condition where water is unable to drain properly through the gutters and seeps into a house, damaging ceilings and walls.

Damage to homes caused by flooding is excluded from standard homeowner policies. Flood insurance is available from the federal government’s National Flood Insurance Program.

Automobile accidents resulting from slippery weather are covered under a standard auto insurance policy. Damage to autos from falling branches or other debris is covered under the comprehensive portion of an auto policy.

“Homeowners and businessowners who have suffered losses need to contact their insurance company or agent as soon as possible to start the claims filing process,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I.

With temperatures dropping, it is important to keep pipes from freezing by keeping your home at least 65 degrees, according to the Institute for Business & Home Safety (IBHS). The temperature inside the walls where pipes are located is substantially colder than the walls themselves. A temperature lower than 65 degrees may not keep the pipes from freezing. Ideally, the attic should be five to 10 degrees warmer than the outside air.

“Everyone should know how to shut their water off," said Wendy Rose with IBHS. “If water freezes and pipes burst, time is of the essence to keep damage to a minimum and prevent it from becoming a personal financial disaster.”

III - December 2007

Despite Increasing Opposition Industry Insiders Predict Growth in Life Settlement Market

At the 18th annual Executive Conference for the Life Insurance Industry it was reported that 60% of insurance executives predicted that the secondary market for life insurance would experience significant growth in the next five years. In the same poll, only 5% said it would be smaller and 2% believed it would be the same.

However, more than half (52%) of the group indicated that they would root out life settlements, and only 36% said they would want to participate in this growing but controversial industry.

Much of the debate surrounding life settlements is caused by investor-initiated life insurance or stranger-owned life insurance (STOLI). Although some insist that the two are not the same, many insurance players are opposing the practice.

The American Council of Life Insurers (ACLI) believes the answer to curbing STOLIs is to impose a rule in every state that prevents life insurers from revoking policies after two years. However, critics say hiding STOLI transactions from insurers for two years will effectively circumvent the ban.

ACLI also supports the National Association of Insurance Commissioners’ (NAIC) amended Viatical Settlement Model Act that imposes a five-year ban on the transfer of policies suspected to be STOLI transactions. North Carolina Insurance Commissioner Jim Long described this as the best way to make investors wait before they can get their hands on a policy, but others label it as an all-out attack on the secondary market that does not address the problem.

Insurance companies also object to the fact that life settlement companies keep many policies in force. Insurers normally anticipate about 6% of life insurance policies to lapse as policyholders forget about them or decide to stop paying the premiums because they don't need them anymore. Or the insurance provider only pays a relatively small amount if a policyholder decides to cash out his or her unwanted or unneeded contract.

Buying policies from owners who would otherwise allow them to lapse – at about three times that of surrender fees from an insurer – keeps the number of lapsing policies low. Insurers will therefore have to pay the coverage amount when the insured dies or is forced to offer surrender values that are comparable to life settlement market prices.

Economists have said that the life settlement market would be worse than the current subprime fiasco now that Wall Street firms are buying unwanted policies, pooling them and using them as collateral to sell the so-called death bonds to investors looking for uncorrelated investments.

Insurance NewsNet - December 14, 2007
 

Agent Groups At Odds Over Biggest Problems With N.Y. Comp Reform Law

Associations cite concerns over enforcement, trust fund, rate cuts

As New York forges ahead to implement this year’s landmark changes in its new workers’ compensation reform law, the state’s two major independent agent groups are expressing some serious but conflicting concerns over issues of enforcement, trust-fund assessments and the sustainability of recent rate cuts.

The organizations at odds over what to worry about going forward when it comes to workers’ comp are the Independent Insurance Agents and Brokers of New York and the Professional Insurance Agents of New York.

Signed into law in March by Democratic Gov. Eliot Spitzer, the measure called for a host of reforms, including:

• Increased penalties for workers’ comp fraud.

• Higher weekly benefits, both minimum and maximum.

• Objective medical guidelines, to be developed to better determine disability.

Jamie Deapo, member advocate and assistant vice president of member programs for IIABNY, questioned a section of the law that involves the Aggregate Trust Fund.

According to the legislation, carriers that sell workers’ comp in New York must pay the “present value” of permanent partial disability benefits into the ATF.

Mr. Deapo noted that insurers paying into the ATF are not eligible for a refund in the event of an overestimate but must pay more in the event of an underestimate.

“Imagine you have a younger person that gets a [permanent partial disability award] and you throw up $200,000 for this gentleman or lady, and a couple of years later they’re killed in a car accident. You don’t get any of that money back,” Mr. Deapo explained.

He also questioned the fairness of exempting self-insured trusts and the New York State Insurance Fund from making these payments while requiring private carriers to pay into the fund.

However, while Mr. Deapo cited the ATF as one of his biggest issues with the reforms, David Dickson, past president of the PIANY, does not see it as a major concern in the long run.

“I would say, with regards to the application of the funds and their availability, that there is going to be an ‘ironing out’ period,” he said. “I’m not worried about it. I wouldn’t put [the ATF] as one, two or three in my list of concerns.”

However, Mr. Dickson has more of an issue with what he characterized as the state’s failure to enforce laws against misclassification of employee jobs at less risky levels by businesses, as well as the failure by some employers to provide proper workers’ comp coverage.

National Underwriter - December 17, 2007

FAILURE TO INFORM INSURER OF CHANGE OF PROPERTY OWNERSHIP  HELD NOT FATAL TO COVERAGE

D.F. Realty LLC et al. v. Security Mutual Insurance Company et al. 2007 NY Slip Op 52369(U) Decided on December 12, 2007 Supreme Court, Broome County Lebous, J.

Plaintiffs commenced this action seeking to amend the name of the insured on a property policy so as to reflect a change of ownership, so that plaintiff could collect benefits based on a fire at the insured premises. 

On February 19, 1997, Joan F. Dorsey purchased residential rental property located at 3 Thorpe Street, Binghamton, New York ("Premises"). On that same date, Ms. Dorsey also secured a landlord's fire and liability insurance policy from Security Mutual through defendant Falvo Agency, insuring the Premises with herself as the named insured for a three year term starting on February 19, 1997 and running through February 19, 2000.

In November 1997, Joan F. Dorsey and her son Lawrence C. Foster formed D.F. Realty, LLC (the "LLC"). The ownership of the LLC was divided between Joan F. Dorsey as the majority owner and Lawrence C. Foster as the minority owner.   On December 19, 1997, Joan F. Dorsey transferred 3 Thorpe Street to the LLC by way of warranty deed.

In late 1997 and early 1998, the LLC encountered insurance problems relating to the necessity for continuing to carry workers' compensation coverage. According to plaintiffs, there were numerous written and oral discussions between Joan F. Dorsey, her agent Steve Falvo, her attorney Phillip J. Artz, and workers' compensation officials through which the issue - Mr. Foster's status as an employee of the LLC - was ultimately resolved.

On February 19, 2000, the Policy was renewed for a second three year term starting February 19, 2000 through February 19, 2003 ("Renewal No.1"). The premium was paid by the LLC each year of the renewal period.

Joan F. Dorsey died on July 15, 2000. Two of her five children, Lawrence C. Foster and Carol J. Guiton, were named co-executors of her estate. Ms. Dorsey's Last Will and Testament left her ownership in the LLC to her five children.

On February 19, 2003, the Policy was renewed for a third three year term starting February 19, 2003 through February 19, 2006 ("Renewal #2"). Again, the premium was paid by the LLC each year during the renewal period.

On September 22, 2005, fire destroyed the Premises

Rogak Report - December 13, 2007

Execution of contract triggers coverage for additional insureds

General contractors and subs should specify when their contractual relationship begins

If a general contractor fires a subcontractor and hires another subcontractor to take over the existing work, the question is whether the new subcontractor’s agreement to name the general contractor as an additional insured will be recognized by the subcontractor’s insurer if, at the time of an accident, the contract between the general contractor and subcontractor was not yet signed.

This actually is a fairly common situation. Sometimes it is not practical for a contract to be signed before work commences. Manufacturers that regularly require work by a plumber, electrician, carpenter, and other service providers commonly require the signing of purchase order agreements before work can begin. But in an emergency, the signing of a contract sometimes has to be postponed.

In many other instances, the parties involved have contracted with one another in the past, have trust in one another, and each knows (or should know) what his or her respective obligations are likely to be.

Even if the parties to a contract have not contracted with one another in the past, there is often some oral agreement or implied understanding as to the contract terms. With time of the essence, project owners, general contractors and a variety of businesses often permit the commencement of work, even though the contract has not been signed.

As a matter of principle, a subcontractor’s insurer is likely to refuse to defend and indemnify the additional insured in the foregoing scenarios, whether the contract has been signed or not, particularly when there are no allegations of fault attributable to the subcontractor.

Apart from that common pattern and practice of denying coverage to the additional insured, whether a contract has to be signed before additional insured coverage is activated is a legitimate concern. In fact, a considerable amount of dialogue currently is being generated in insurance circles about the requirement of some insurers issuing blanket additional insured endorsements.

Rough Notes - December 2007

Honda a favorite of car thieves in Suffolk County

Hondas are hot.

Announcing the results yesterday of a months-long sting targeting motor vehicle thefts, the Suffolk County district attorney's office said that of the 92 stolen cars - valued at $1.1 million - it recovered, 37 were Hondas. The models varied in year, but detectives reported buying as many as four or five - generally from the 1990s - at a time, officials said.

The sting began about 16 months ago and is continuing through December. Other vehicles in the bust ranged from a Hummer to late-model Mazdas, fresh off the dealership lot.

Detectives, operating out of an undercover garage on Suffolk's South Shore, purchased the cars at 5 percent to 10 percent of their Blue Book value, police said. They arrested 22 people, including a fifth-grade teacher who falsely reported her leased 2005 Cadillac stolen; a 27-year-old Massapequa man who sold his grandfather's 2003 Lexus to undercover detectives; and a mechanic who made copies of his customers' keys and then stole their cars.

"Theft rings peddling stolen cars are big business in Suffolk County and the metropolitan area," District Attorney Thomas Spota said in a statement, "and this operation found all manner of theft, from insurance give-ups to cars stolen by a person posing as a customer..."

Nationwide, the two most frequently stolen cars in 2006 were the 1995 Honda Civic and the 1991 Honda Accord, followed by the 1989 Toyota Camry, according to the nonprofit National Insurance Crime Bureau. Spokesman Frank Scafidi said their popularity with thieves stems from their popularity in general and coveted replacement parts.

Newsday - December 12, 2007

Undercover chop shop sting nets 22 arrests

For the past two years undercover detectives ran a sting operation -- a fake chop-shop -- at a western Suffolk County garage.

First they bought stolen cars from the thieves. Then they locked them up.

One suspect is charged with stealing and selling his grandfather's Lexus, not even bothering to remove his grandmother's wheelchair from the trunk, prosecutors say.

Another test-drove four cars from dealers' lots then returned to burglarize the offices, steal the keys and make away with all four vehicles.

A third suspect was an auto mechanic who made copies of customers' keys then stole their cars, Suffolk District Attorney Thomas Spota's office said.

They were among 22 people arrested by undercover detectives in the sting. They bought 90 stolen cars, trucks and motorcycles from thieves, Spota's office said, paying five to ten percent of the blue book value of the vehicles. Some were stolen from car lots and others from owners who left them unattended with the engine running, prosecutors said.

Spota, police Commissioner Richard Dormer and Frank Orlando, director of the state Insurance Frauds Bureau, disclosed details of the sting Tuesday. It began in 2005 and ended in November.

Altogether, 22 men and women were charged with stealing or reselling the stolen vehicles, valued at $1.1 million. Thirty-seven of the cars were 90s vintage Hondas stolen for their parts.

Newsday - December 11, 2007
 

Cunning Auto Insurance Policyholders Take Insurance Industry for 'Ride' to Tune of Nearly $17 Billion in 2006

Annual Premium Rating Report Released by Quality Planning Corp. Uncovers Preventable Auto Premium Rating Error That Could Boost Profit and Reduce Cost of Auto Insurance to Consumers

Quality Planning Corporation (QPC), an ISO company, today released its annual Premium Rating Error report, which reveals how devious consumers continue to play a costly role in causing auto premium rating errors. QPC estimates that, in 2006, premium rating error resulted in the loss of $16.6 billion of premium revenues -- an increase over the 2005 figure.

The industry's combined $16.6 billion premium rating error represents nearly 10 percent of the $166 billion revenue recognized by personal auto insurance premiums industrywide. The report, The Auto Insurance Is Under Attack, aggregates and summarizes audit results from more than 18 million policies, representing 20 major carriers. The sample includes substandard to preferred books of business, all distribution channels, and national and regional carriers.(1)

The report can be found online at: www.qualityplanning.com

"This report indicates that insurance companies are still missing opportunities to increase profit," said Raj Bhat, president of QPC. "Unfortunately, this revenue loss will continue to build, year after year, unless insurers establish modern and sophisticated premium leakage detection systems. The good news is that once such a system is established, insurers can easily reduce premium leakage by 60 percent in a single policy period."

Consumer fraud: a leading cause of premium rating error

The QPC report shows how different categories of rating errors contribute to overall premium rating error, and distinguishes between vehicle rating errors (mileage, usage, type of vehicle, and location) and driver rating errors such as driving experience and driving record. The report concludes that rating error is increasing for two primary reasons: consumer fraud and dynamic risk profiles.

The Internet has greatly contributed to an alarming rise in fraud by providing consumers with step-by-step instructions that outline exactly how they can reduce their automobile insurance, bilking the insurance industry of legitimate premium revenue. Such sites offer 'advice' that encourages policyholders to switch companies and coaches them on how to get the lowest quote from a competitor. Insurers need to adopt methodologies to safeguard themselves against these cunning co-conspirators.

Marketwire - December 12, 2007

N.J. Senate Passes Agent-Friendly Auto Insurance Changes

New Jersey insurance agents would no longer be required to offer auto insurance quotes from all of their companies under a bill recently passed by the state's legislature.

The bill, which carries the backing of both the Professional Insurance Agents of New Jersey and the Independent Insurance Agents and Brokers of New Jersey, heads to the desk of Gov. Jon Corzine for his signature.

The bill comes after agents complained the current auto insurance system in N.J. "places an unnecessary obligation on insurance agents and does not serve consumers because it fails to take into account all factors that agents consider when offering coverage options to consumers," said Jack Lynn, PIANJ president.

Insurance Journal - December 11, 2007

Demystifying Auto Rental Insurance

As the holiday season approaches, Americans everywhere are planning to go "over the river and through the woods"—maybe to Grandma's, maybe to kids' homes, maybe to a special, once-a-year vacation spot. And many of those folks will be flying to their destination, where they will then rent a car.


If you've ever rented a car at an airport—especially at holiday time—it can be a frustrating experience. After waiting for what seems like an eternity for your luggage to show up on the carousel, you then have to find the car rental office, often not an easy task. (Before going on, I must give "kudos" to the Ft. Lauderdale-Hollywood (FL) International Airport: there, all of the car rental companies are located in one building, with specially designated shuttle buses to transport customers to and from the terminal. It is, by far, the easiest, most convenient arrangement I've ever come across.)

When you get to the car rental counter, you often wait in a very long line, while the overworked clerks at the other end do their best to get each and every customer into the car of their choice. Part of that process is explaining the cost (and any associated "overage" charges); the gas tank fill-up policy; and, maybe most importantly, the "insurance" offered by the rental company. This insurance is usually referred to as collision damage waiver (CDW) or loss damage waiver (LDW), and that "insurance" can often be complicated and costly.

However, before looking at what the car rental companies offer, and what their contracts require of the renter, this column will examine the coverage for rental cars provided by the personal auto policy (PAP).

Rental Cars and the PAP
The first question that many PAP customers ask their agent is this: "If I'm driving a rental car and have an accident where I hurt someone, am I covered?" The simple, direct, and (most importantly) correct answer is: "Yes." The liability insuring agreement of the PAP says that the named insured and his or her family members have coverage for the "ownership, maintenance, or use" of "any auto or trailer."

"Any" is the operative word here. Of course, there are some exclusions, but those come up in rare cases. We will be dealing with the typical, vacation car-rental situation—where the PAP named insured rents a car for a week or so of vacation fun. Consider John and Mary Smith, who have a PAP that covers their 2006 Toyota Prius for liability, medical payments, uninsured motorists, collision, and other-than-collision. They fly to Southern California for 2 weeks of fun in the sun at Christmastime. They rent a car from any one of the myriad of car rental companies, and off they go. On the way to the hotel, John runs a red light and hits another car. John and Mary are unhurt, but the elderly driver of the other car must be taken to the hospital. If that injured driver sues John over his injuries, John's PAP will provide him with liability coverage and a defense.

IRMI - December 2007

Risk Management: Protecting Assets When Home Ownership Is Transferred to a Trust

It is becoming more and more popular with estate planning attorneys to try to reduce estate taxes on tangible property by transferring ownership of that property from an individual to a trustee of a trust.

In the case of a residence ownership transfer, the former homeowner, the "grantor" of the trust, is usually allowed to continue to reside at the residence and use the personal property at his discretion for life. However, what may be a good move for estate preservation from taxes exposes the entire estate to some serious potential uninsured claims.

Bill and Mary's Story
Bill and Mary, in their mid-50s, have been through an estate planning session with their attorney. He has recommended that they transfer ownership of their $5 million in assets, including their $2 million home and their estimated $1 million in personal property including artwork, a sailboat, and canoe—to a trust in their name. They follow his advice and do the deal. They appoint Mary's brother, Joe, as trustee of the trust. No changes are made to any of the insurance policies. The named insured listed on the homeowners and umbrella policies remains Bill and Mary.

The following claims occur.

As the result of a defective electrical circuit, the house burns down, destroying the building and all contents. The replacement cost of the property is $3 million—the same as the insurance coverage. The insurance adjuster, when delivering the $3 million check, requests a copy of the title. When the adjuster sees that the title is in the name of Joe as trustee of the trust and, on further investigation, discovers in the trust documents that the household personal property is also owned by the trust, the adjuster rips up the check.

The Reason? Neither the trust nor trustee is an "insured" under the homeowners policy definitions. Therefore, the trust property ownership of the home and personal property is completely uninsured, and Joe and Mary probably will get paid only for the economic value of their insurable interest—the additional living expenses for renting a fully furnished home. The value of the estate including the trust assets, however, has just been reduced by $3 million!

IRMI - December 2007
 

Workers' Compensation Board Recommends New Funding Model to Guarantee Self-insured Claims

New York State Workers' Compensation Board Chair Zachary S. Weiss issued a report to Governor Spitzer and the Legislature proposing sweeping changes to the way self-insured claims are secured in New York.

If enacted into law, a new funding model would be created, resulting in the release of the nearly $2 billion in letters of credit and surety bonds back to New York's active individual self-insured employers. View the report

"This is another positive step in Governor Spitzer's workers' compensation reform initiative. It will protect injured workers, reduce financial burdens on creditworthy self-insurers, and help to keep self-insurance as a viable option for employers in New York," Chairman Weiss said. "We look forward to working with the legislature and other affected stakeholders to achieve meaningful reform in this area."

In the report, the Board recommends adopting a new model for guaranteeing self-insured claims. The Board recommends replacing the current "silo" approach, where employers post a security deposit equivalent to their outstanding workers' compensation claims with a "guarantee pool," where payments into the pool are based on credit rating and the actual risk an employer brings to the pool. The proposed pool system would be used to guarantee claims in the event any of New York's self-insured employers default on their workers' compensation obligations.

"Self-insurance is a privilege, not a right. When a self-insurer defaults on its obligations, this poses an unacceptable risk that benefits will not be paid in a timely manner to injured workers, and that other employers within the self-insurance program will be subjected to unexpected financial stress," Chairman Weiss said. "The recommended pooled approach will reduce the risk of insolvencies within the self-insurance program and mitigate the consequences of those insolvencies that do occur. In addition, it will eliminate the security most employers must post to be authorized as an active self-insurer in New York State."

The 2007 Workers' Compensation Reform Bill directed the Board to recommend a new bond program for "individual" self-insured employers. The report does not address other types of self-insurance, such as group trusts or municipal programs, although it notes that some of the tools recommended in the report for individual self-insurance also could address issues with group trusts.

New York requires employers to provide workers' compensation coverage through one of three ways: an insurance carrier, the State Insurance Fund, or through self-insurance. There are 150 parent companies approved as individual self-insurers in New York. They bring 285 subsidiaries into the program for a total of 435. These companies have 525,000 employees in New York alone, with a combined annual payroll of $27 billion.The Board holds $1.8 billion in security deposits for these active self-insurers and an additional $800 million for inactive self-insurers. It is estimated that these employers collectively pay $33 million annually to meet the Board's security deposit requirements.

NY State Compensation Board - December 10, 2007

Public Comments Invited on Proposed New and Revised Board Forms


The Workers’ Compensation Board invites the public to submit comments on draft revisions of its three primary claim forms and two new forms by visiting http://www.wcb.state.ny.us  from December 10, 2007, through January 11, 2008.

Forms C-2, C-3, and C-4 are filled out by New York’s employers, injured workers and doctors, respectively, to report a workplace injury or illness. The public is also invited to review two additional forms: Form C-3.3, which allows claimants to authorize the release of medical information by health care providers, and Form C-4.2, the treating doctor’s continuing/final report. The revised C-4 will be used for the doctor’s initial report only.

NY State Compensation Board - December 10, 2007

WHEN THERE IS MORE THAN ONE INSURED, NOTICE OF PHOTO INSPECTION REQUIREMENT MUST BE SENT TO ALL

Wright and Jennings v. Progressive Northeastern Ins. Co. and DCAP Bayside Inc. 2007 NY Slip Op 52315(U) Decided on November 29, 2007 Supreme Court, Queens County Weiss, J.

In April 2006, plaintiffs Jamila Z. Wright and Claudette Jennings purchased a 2002 Lexus automobile for $28,000. The plaintiffs applied for insurance through defendant DCAP Bayside, Inc., an insurance broker, which alleged that it informed them that they had to obtain a photo inspection of the vehicle in order to have coverage for "physical damage," including theft. The broker allegedly gave the plaintiffs a notice which read in relevant part: "This notice will also serve as a reminder that the above described vehicle must be inspected by the date indicated or physical damage coverage will be suspended 12:01 AM on the above inspection completed date. ... If you need to have the photo inspection done please call CARCO at 1-800-969-2272."

Plaintiff Jamila Wright signed a document captioned "Acknowledgment of Requirement for Photo Inspection," by means of which the plaintiff admitted that she had been informed of the requirement concerning the photo inspection and the consequences of a failure to comply. The defendant insurer also sent by mail to plaintiff Jamila Wright a confirmation of physical damage coverage with notice of mandatory photo inspection requirement.

The plaintiffs did not have their vehicle inspected.

On April 25, 2006, defendant Progressive sent plaintiff Wright a "Confirmation of Suspension of Physical Damage Coverage" notifying her that coverage had been suspended but could be restored upon compliance with the inspection requirements. On October 15, 2006, a thief stole the 2002 Lexus automobile owned by plaintiff Jamila Z. Wright and plaintiff Claudette Jennings. The vehicle was never recovered.

Rogak Report - December 10, 2007

Workers’ Comp Risk Issues Emerging

While presenting a generally rosy forecast of underwriting profitability for the property-casualty industry, the president of the Insurance Information Institute said he has growing concerns about the workers’ compensation line.

Speaking at a meeting of the Casualty Actuaries of Greater New York here on Thursday, Robert P. Hartwig, president of New York-based I.I.I., suggested that if recent occupational disease studies have merit, the trends they reveal could impact insurer results going forward.

“I am concerned about latent disease,” Mr. Hartwig said, referring to cancers or lung disorders developing in workers many years after they complete their jobs.

“There’s an emerging literature on degenerative neurological diseases associated with occupation,” he added, noting, for example, that Parkinson’s disease is highly correlated with people who have certain occupations. He added that a soon-to-be-released study by the World Health Organization will show “that people who work the graveyard shift are more likely to get cancer.”

Mr. Hartwig discussed the emerging issues after describing the dramatic improvement in workers’ comp calendar-year combined ratios in recent years. Since 2001, when the National Council of Compensation Insurance reported an unprofitable 122 combined ratio, insurer fortunes have reversed, with the ratio dropping to 90.5 in 2006.

National Underwriter - December 10, 2007

DEPARTMENT ADJOURNS DECEMBER 14 HEARING ON SURETY BONDS

On November 2nd, 2007, Superintendent of Insurance Eric R. Dinallo announced that the New York State Insurance Department would hold a public hearing to determine whether to require the New York Property Insurance Underwriting Association (NYPIUA) to provide a market for surety bonds. The hearing was to be held pursuant to Section 5412 of the Insurance Law, which authorizes the Superintendent, after conducting a public hearing, to require NYPIUA to provide a market for meaningful insurance coverage. The hearing was scheduled on December 14th at the Adam Clayton Powell Jr., State Office Building in New York City. Notice of the hearing was published in the New York State Register on November 28, 2007.

This hearing has been adjourned until further notice.

NY State Insurance Department - December 10, 2007

New York to Study Universal Health Coverage

Governor Eliot Spitzer of New York announced that the state has retained the Urban Institute to study several different approaches to universal health care for the state. The Urban Institute is a policy research group that will study different proposals and is required to submit their findings to the Governor by May 31, 2008. In addition, the state has begun a series of public hearings to discuss various health care possibilities.

New York instituted the Partnership for Coverage as a policy initiative to control Medicaid spending. The hearings will be held all over New York and will encourage business owners, concerned citizens and others to meet and discuss health insurance for New Yorkers. A list of hearing dates is available at the Partnership for Coverage website.
 

About.com - December 5, 2007

Study: Motorists Don't Drive as Well in Freezing Temperatures

Many American drivers are unsure of proper vehicle operational procedures when driving in freezing temperatures, according to a survey conducted by GMAC Insurance and Road Safe America. The survey, which sampled licensed Americans from all 50 states and the District of Columbia, indicates that more than one- third of drivers cannot correctly identify the proper use of cruise control, and nearly two-thirds underestimate how full they should keep their gas tanks.

Specifically, the survey found that 36 percent of licensed drivers -- approximately 72 million people -- believe it's safe to drive with their cruise control activated if the temperature is below freezing. However, the two organizations assert that the safest course of action is to avoid using cruise control altogether. Despite clear weather, accumulated moisture on roadways combined with freezing temperatures could lead to icy conditions, which are sometimes undetectable.

Respondents were also unclear on the minimum amount that should be in a vehicle's gas tank: 31 percent indicated it didn't matter, four percent responded one-eighth of a tank, 28 percent answered one-quarter tank and 37 percent said one-half tank. The survey organizers recommend keeping the gas tank as full as possible but at least half full to maximize the length of time vehicle occupants can run the engine as a source of heat in an emergency

Insurance Journal - December 10, 2007

Stratford sued over kite-surfing death

The widow of a professional skier from Bulgaria who drowned while kite-surfing off Long Beach West two years ago has filed a negligence lawsuit against the town in U.S. District Court in Bridgeport.

Veneta Popow, 37, of Peekskill, N.Y., filed the suit seeking in excess of $75,000 for the death of her husband, 48-year-old Stoil Popow on Jan. 21, 2006.

The search for Popow, one of the most intensive ever in the area, included U.S. Coast Guard helicopters from as far away as Cape Cod and covered about 260 square miles.

The drowning also touched off worldwide reaction, as people from across the globe contributed money so the Bulgarian native's wish to be buried in his homeland could be realized.

U.S. Coast Guard officials said water had apparently filled Popow's dry suit when his body was discovered about two miles southeast of Stratford Point.

New York lawyer Mario Biaggi, representing the claimant, said Friday a key point in the suit is that a short time prior to Popow's death Stratford officials were forced rescue a man in the same location.

"Our research turned up evidence that another person nearly drowned in the same spot," Biaggi said. "We believe that should have alerted town officials to taking precautions to prevent a tragedy they knew could happen."

ConnPost - December 7, 2007

Lidoderm(R) Unseats OxyContin(R) to Top The Hartford's New List of Top 25 Drugs Used in Workers' Compensation

The Hartford Financial Services Group, Inc. (NYSE: HIG - News) released its 2006 annual study of the 25 most costly drugs in workers’ compensation, and the results this year may be considered surprising. OxyContin, the long-acting narcotic painkiller that headed the list each year since 2001, had dropped to number five, replaced by Lidoderm, a non-narcotic pain killer in patch form.

“We remain concerned about the widespread use of narcotic pain killers to manage non-malignant pain in injured workers,” said Dr. Robert Bonner, MD, MPH and medical director for The Hartford. “Narcotics account for 40 percent of the workers’ compensation claim dollars we spend on pharmaceuticals, but other pain management drugs and combinations would work equally well for some patients and avoid the potential risks associated with narcotics.”

Given OxyContin’s continued popularity in the face of years of publicity about patients becoming addicted or selling the drug, it is unclear as to how the use of this drug will trend over the next few years.

One reason The Hartford publishes its annual study is to track expenditure over time as they impact trends. The Hartford found workers’ compensation pharmacy costs relatively flat for the past two years, rising just three percent in 2006 after dropping by one percent in 2005. Bonner credits his team’s careful and aggressive pharmacy oversight.

“Pharmacy is now a big portion of workers’ compensation costs, so ensuring that the appropriate medications are used is not only good for our insured workers, but also helps stabilize rates for workers’ compensation, an insurance coverage that virtually every business with employees must carry,” Dr. Bonner said. “Working with our pharmacy benefits manager, we flag and investigate drugs that seem inappropriate for the injury, encourage the use of generic equivalent drugs when available and talk with physicians when we are concerned about the safety or reliability of a particular drug.”

Ensuring that the correct reimbursement is made remains a challenge in the face of steep per-prescription increases. The average per-dose price of Actiq (#7), already the most expensive drug used for workers’ compensation patients, rose 70 percent, and the anti-depressant Tofranil-PM (#146), rose by 74 percent.

Yahoo - December 10, 2007

Will Professional Liability Insurers Take $19B Hit From Subprime Crisis?

With more experts putting numbers to the possible insurance liability impact of the subprime mortgage crisis last month, the figures are starting to mount, with estimates ranging from $3 billion to 10-times that amount. The first figure—which relates only to potential directors and officers liability claims—could be dwarfed by $16 billion-plus in professional liability insurance losses, also known as errors and omissions insurance, some experts say.

While the latest expert analyses are based on data collected so far, some forecasters also note that information available to date represents just the tip of what seemed like a slow moving iceberg back in April, when National Underwriter first reported on the subject. (See NU, April 2, page 14.)

Then experts were speculating that the subprime crisis would not have the D&O impact of financial meltdowns like Enron or WorldCom, or even the lesser impact of options backdating cases.

Now, “the numbers are staggering,” according to Frederick Zauderer, technical director of Travelers Bond & Financial Products in New York.

National Underwriter - December 10, 2007

NAIC To Develop Federal Bill To Help Standardize Insurance Regulation

New president says a number of options will be reviewed before going to Congress

The National Association of Insurance Commissioners will work next year on a proposal for standardizing insurance regulation nationwide that it can bring before Congress, according to the group’s new president.

Kansas Insurance Commissioner Sandy Praeger, who will lead the NAIC in 2008, emphasized that the effort will enhance state regulation and not abrogate state authority.

She explained that the NAIC has worked with federal officials on proposals in the past for issues such as supplementary Medicare insurance. The state regulator association also worked with the FBI, she noted, to coordinate a plan for producer licensing records.

A number of approaches will be reviewed and considered during the commissioners’ annual weekend gathering in February to discuss standardized regulation, she said.

One proposal was detailed by Texas Insurance Commissioner Michael Geeslin during the government relations leadership council session here at the NAIC’s quarterly meeting. He discussed the idea of developing a model called the “Federal Standardization Act of 2008” in the coming year as a way to homogenize insurance regulation.

Currently, he explained, insurance is being looked at by different federal authorities, adding that more standardization is needed.

National Underwriter - December 10, 2007

Hospitals balk at insurer notification demand

Consumers often must notify their insurer within 24 hours if they visit a hospital. Now the nation's largest health-insurance company wants the hospital to call them in 24 hours as well, or lose up to half their reimbursement.

The proposal by Minnesota-based UnitedHealthcare isn't sitting well with hospitals in the Lower Hudson Valley, who call the notification rule another effort to stiff the institutions on payments they've earned. With lower staffing on weekends, hospitals are unlikely to pick up the telephone every time there's an emergency admission.

"That's just putting another step in," said Neil Abitabilo, president of the Northern Metropolitan Hospital Association in Newburgh. "You have no idea how that helps you take care of that patient."

UnitedHealthcare denies the policy is an effort to circumvent its responsibility to pay health providers. The insurer's prompt involvement is in the best interests of the patient, spokesman Tyler Mason said.

"Once you're stabilized in an emergency case, you want to get well and get out of there," he said.

Several weeks ago UnitedHealthcare notified hospitals around the country that it planned to impose the policy starting Dec. 3. Now the policy has been pushed back to April 1, Mason said, after many hospitals said they needed more time to plan compliance.

Until then, UnitedHealthcare will settle for notification by the next business day.

Last week the New York State Insurance Department asked UnitedHealthcare to delay the policy, saying it wanted more time to determine its impact.

LowerHudson - December 10, 2007

Fraud Investigators Brace for Arsons from Subprime Mortgage Crisis

Insurance fraud investigators are girding for an expected rash of arsons by cash-strapped homeowners trying to avoid foreclosures and ballooning monthly payments as the subprime mortgage crisis deepens.

"Home arsons for insurance money by mortgage-burdened owners are hardly new. The question is whether a new and virulent spike looms," says the Coalition Against Insurance Fraud.

Falling home values and tighter lending are making it difficult for many people to finance their way out of trouble. More than $50 billion in adjustable-rate mortgages were reset last month, thus intensifying the financial crunch on homeowners, says the coalition's Executive Director Dennis Jay.

"The subprime mortgage crisis is crushing untold thousands of homeowners under heavy mortgage payments they can't afford—especially as many monthly payments adjust upward sharply after introductory teaser periods of low-interest rates," he writes in an article in its publication, Fraud Focus.

Only a few suspected home torchings have surfaced so far. Samuel White allegedly burned down his Houston home for insurance money to dodge a scheduled foreclosure. An African-American, he allegedly spray-painted racial slurs around the interior to make the suspected crime appear to be a hate crime.

Suspected mortgage-related home arsons already have jumped 50 percent above the 2006 rate in California, though the numbers are still relatively small, the insurance department says.

Insurance Journal - December 3, 2007

Storm team predicts seven hurricanes in 2008

In early forecast of the 2008 Atlantic hurricane season issued Friday by the Department of Atmospheric Science at Colorado State University predicts 13 named storms, seven of which will become hurricanes.

The forecasters further predicted that three of those seven hurricanes will become “major” storms packing sustained winds of 111 mph or more.

The report puts the odds of a major hurricane striking the U.S. East Coast at 60%, which is slightly higher than the 52% average over the past century.

The Atlantic hurricane season runs from June 1 through Nov. 30.

In a statement, forecasters said that the forecast is based on a new extended-range early December statistical prediction scheme that uses 58 years of data. The forecast also contains an analysis of all of the department’s extended-range forecasts that have been issued over the past 16 years.

Business Insurance - December 7, 2007
 

$20.5 Million Welder Verdict Could Worry Insurers

Toxic exposure claims from welders became a bigger factor for insurers when a federal jury in Ohio returned a $20.5 million verdict for a welder who claimed he was made ill by the fumes from his work.

The Wednesday verdict illustrates that welder claims “belong on the emerging risk radarscope as something insurers have to be aware of,” said Robert P. Hartwig, president of the Insurance Information Institute.

A statement for the five welding rod manufacturers, who were defendants in the case, said they would appeal and defend themselves against “baseless claims” and expect to be successful.

But David Shelton, a lawyer for plaintiff--Jeffery Tamraz, 51, of Grant’s Pass, Ore.--characterized the case as a breakthrough and a turning point for such suits.

The nine-member jury in Cleveland made its award against Lincoln Electric, Hobard Brothers Company, ESAB Group Inc., TDY Industries and BOC Group Inc., finding they had failed to properly warn against the danger of manganese in their products.

In addition to the $17.5 million in compensatory damages for Mr. Tamraz, the jury awarded another $3 million to his wife, Terry, for loss of consortium. The defendants were not found liable for punitive damages or fraudulent concealment.

National Underwriter - December 7, 2007

CGL POLICY COVERS NEGLIGENT HIRING OF EMPLOYEE WHO ASSAULTED CUSTOMER; RESERVATION OF RIGHTS LETTER INEFFECTIVE

NYAT Operating Corp. v. GAN Natl. Ins. Co. 2007 NY Slip Op 09675 Decided on December 6, 2007 Appellate Division, First Department

This was a declaratory judgment action involving insurer GAN's obligation to defend and indemnify plaintiff insured NYAT in an underlying action in which Cabrera obtained a judgment against NYAT for having negligently hired and retained an employee who sexually assaulted her in the amount of $997,448. The Appellate Division affirmed an order from Supreme Court, New York County in favor of the plaintiff.

"Because NYAT's liability in the underlying action was based on its negligent hiring and retention of the employee, not respondeat superior, the sexual assault was a covered 'accident' within the meaning of the policy, and the exclusion for injuries expected or intended from the standpoint of the insured does not apply (RJC Realty Holding Corp. v Republic Franklin Ins. Co., 2 NY3d 158 [2004])."

Rogak Report - December 7, 2007

COUNCIL OF INSURANCE BROKERS OF GREATER NY HONORS PAST PRESIDENTS AND BESTOWS 2007 LIFETIME ACHIEVEMENT AWARD ON
DONALD D. GABAY, ESQ.

Press Release

New York, NY, November 28, 2007—The Council of Insurance Brokers of Greater New York (CIBGNY) honored its past Presidents on the 40th Anniversary of the Association and bestowed Donald D. Gabay, Esq., of Stroock & Stroock & Lavan with its 2007 Lifetime Achievement Award at the El Caribe Country Club, in Brooklyn, NY, on November 16, 2007.

"Since the inception of the Association in 1966, CIBGNY is proud to have had the best leadership in the insurance industry. I am honored to be the President of this prestigious group, especially on its 40th Anniversary. " said Peter N. Resnick, President. "This organization has developed a sterling reputation in the industry for its ability to help members network and develop relationships with insurers and brokers."

"As an Association, we continue to advocate a high standard of morality among members: to promote impartial treatment and trade practices in the industry; to support positive relationships among insurance companies, brokers and agents; and to take part in the legislative processes within our industry. Resnick continued, "Our past Presidents have helped ensure that the Association stays on track with the issues that are of concern to our clients and the insurance community."

Al Caputo of Buckingham Badler stated, "40 years is a milestone in the history of the Association. As dinner chair, and past President, I am even more honored to have had our former Superintendent of the New York State Insurance Department, The Honorable Greg Serio be on hand in honoring these insurance leaders and installing our 2007/2008 Officers and Directors." He continued, "It is through their direction and leadership that the Association can continue its work over the coming years."

Those honored included: Anthony S. Calafiore, Apex Brokerage Co.; Al Caputo, Buckingham Badler Associates; Jeffrey H. Greenfield, NGL Financial Services; F. Michael Conte, Honig Conte Porrino Insurance Agency; Howard I. Honig, Honig Conte Porrino Insurance Agency; George A. Marchetti, Jr., Marchetti & Sabatelli; Stuart Badler, Buckingham Badler Associates; Kenneth Pollack; Ira Zapin; Paul Olshen, Dewitt Stern Imperatore; Alfred Nussbaum; Steve Sabatelli; Thelma E. Goodrich, Goodrich Johnson Agency and Donald D. Gabay, Stroock & Stroock & Lavan. A moment of silence was also observed in honor of those past Presidents who were deceased. They include George A. Marchetti, Sr.; William R. Paris, Seymour Terry; Isaac M. Oberman, Ernest R. Johnson and Alfred J. Rosse.

In addition, Donald G. Gabay, Esq., the Associations 4th President and former First Deputy Superintendent of the NYSID from 1978 - 1984 and Chief Counsel to the New York State Assembly Committee on Insurance from 1975 - 1978, was bestowed with CIBGNY's 2007 Lifetime Achievement Award. Dinner Chair Al Caputo of Buckingham Badler said, "Don is an outstanding businessman who is dedicated to the industry and his family. The Council is proud to count him as a member and is especially pleased to recognize his many achievements in the industry—achievements that span more than a half of a century.

CIBGNY is a professional, independent insurance brokers association in the New York City metropolitan area.
---------------------------------------------

Selected Opinions of the Office of General Council

Report: Future Exposure to Coastal Flood in Key Cities Worldwide

As many as 150 million people in the world’s major cities could be reliant on flood defenses by 2070 – more than three times the 40 million people today – as a result of climate change and urban development, according to a major new study by the Organisation for Economic Co-operation and Development) and jointly authored by Risk Management Solutions (RMS) and leading academics from the University of Southampton, the Tyndall Centre, Météo-France, and the Centre International de Recherche sur l’Environnement et le Développement (CIRED).

The findings are from the first stage of the largest study on urban coastal flood exposure ever undertaken. Over 130 key port cities worldwide are analyzed to investigate the likely impact of climate change alongside subsidence, population growth, and urban economic development. The study focuses on the exposure of people, property, and infrastructure to a 1-in-100 year flood event now and in the future, and could have significant public policy implications for where to focus adaptation strategies to climate extremes.

Property & infrastructure exposure

The cities with the highest value of property and infrastructure assets exposed to coastal flooding caused by storm surge and damage from high winds today are primarily in developed countries. The top 10 cities, which contain 60 percent of the total exposure, are from only three wealthy countries – the United States, Japan, and the Netherlands – with Miami ranked at the top.

Miami remains at the top of the 2070 rankings, with exposed assets rising from approximately $400 billion today to more than $3.5 trillion. However, the rapid economic development expected in developing nations means that in the future the highest exposure becomes more concentrated in Asian cities, with eight of the top 10 situated in this region. Guangzhou, China, is the second most exposed city in terms of assets, followed by New York, Kolkata (Calcutta, India), Shanghai, Mumbai (India), Tianjin (China), Tokyo, Hong Kong, and Bangkok, respectively.

“These findings deliver a clear message to businesses that invest, or are planning to invest, in highly exposed cities to start implementing pro-active risk management strategies that consider how risks will evolve over time,” said Dr. Celine Herweijer, principal scientist of future climate at RMS. “For the insurance industry, there is both an opportunity and a necessity to promote adaptation. Crucially, rising hazard does not have to translate into increased risk if the right measures are taken.”

“Where risk is today privately insured, incentivizing adaptation amongst policy-holders will serve as a double pay-back for insurers,” Herweijer added. “Likewise, as insurers and business expand their business in Asia, public and private investment in adaptation will be critical to sustaining long-term financial stability.”

NAMIC - December 5, 2007

Latest Hot Co-op Topic: Secondhand Smoke

Benjamin Zitomer lived happily with his family in a two-bedroom apartment at 99 Jane St. in the West Village for six years before a new tenant moved in next door and brought an unexpected menace: It wasn't rats or cockroaches or even noise; it was secondhand smoke.

"It came in through the bedroom wall and permeated in through the front door," Mr. Zitomer, 49, a database administrator, said. "Our apartment was filled with smoke almost every night. We had to have the windows open in the middle of the winter."

Secondhand smoke is overtaking noise as one of the most common complaints coming before condo and co-op boards. While the issue isn't new, real estate lawyers say that with New Yorkers prohibited from smoking at work, in bars and restaurants, and even directly in front of buildings, the battle against secondhand smoke is increasingly taking place at home.

"This is the hot controversy in condos and co-ops right now," a real estate lawyer who gets a new smoking-related case about once a month, Aaron Shmulewitz, said. He added that with more science confirming the dangers of secondhand smoke and fewer people picking up the smoking habit, homeowners are more sensitive to the problem.

"We were really upset and frustrated," Mr. Zitomer said of his experience. "We couldn't go out to escape it. My son had to go to sleep just as it started up at night, and it lasted until 4 or 5 a.m. This guy was something of a night owl."

The president of the board at 99 Jane St., Salvatore Rasa, declined to comment. He said secondhand smoke "is an issue we are all learning about."

For Mr. Zitomer, the problem wasn't so much the initial assault of the smoke on him, his wife, and his 3-year old son as it was his lack of legal recourse.

All told, it took him 10 months to resolve the issue — the condo board eventually rejected the smoker's request to renew his lease when it came up in August — but it could have dragged on for years.

The issue of secondhand smoke represents murky legal territory for lawyers, with little case law on which to base a claim. Essentially, condo and co-op boards must make a reasonable effort to determine the source of the smoke and attempt to mitigate the effects. If they fail to do that, homeowners and tenants can refuse to pay maintenance fees or rent, Mr. Shmulewitz said.

"A board that ignores complaints like this is acting at its own peril," he said.

NY Sun - December 6, 2007

CSB Officials Encouraged with Progress Announced Today by New York City in Revising its Outdated Fire Code

The following statement was issued by the U.S. Chemical Safety Board in response to the announcement by New York today of a proposed draft to revise the city's fire code to include new provisions controlling hazardous chemicals.

Statement of CSB Board Member and Interim Executive William E. Wright:

Four years ago, the Chemical Safety Board called upon New York City to revise its nearly 90-year-old fire code to help prevent chemical accidents and fires in the city.

Our safety recommendation followed a tragic explosion in a Chelsea building in 2002. Dozens of people were injured, including New York firefighters who were there to rescue survivors.

I am encouraged that New York City is proposing the adoption of an updated model fire code that will better control the kinds of hazardous materials that caused the Chelsea explosion and have the potential to continue to threaten public safety.

This code is needed to control hazardous chemicals. I think the adoption and use of a modern fire code will make New York a safer place to work and live.

We would hope that other municipalities would follow suit and similarly revise outdated fire codes that fail to address the use and storage of hazardous chemicals.

Statement of Stephen Selk, PE, CSB Investigations Manager & Lead Investigator in Kaltech investigation:

Our investigation concluded the accident that happened in New York occurred when employees improperly mixed hazardous materials in the basement of a building in Chelsea, and the investigation also found that the New York City fire code did not adequately cover such hazards.

The CSB report called for labeling of hazardous materials, workers to be trained in handling them, and the separation of incompatible chemicals. The CSB also said businesses should be required to submit a hazardous materials inventory and management plan prior to obtaining permits. The Board further recommended that mixed-use buildings be required to develop hazardous materials safety plans, to be shared with the occupants. And the CSB recommended that the fire department and city environmental authorities establish a program to exchange information about hazardous chemicals stored at businesses. Revising the fire code to include these recommendations will make New Yorkers safer.

Chemical Safety Board - December 5, 2007

At least 50,000 New York City construction jobs, or 25% of the total, are part of the untaxed--and at times unsafe--underground economy, according to a new report from the Fiscal Policy Institute.

The study, the first comprehensive estimate of job numbers that elude the usual government data-gathering methods, is based on 2005 figures and probably understates the true count by as much as 15%, said James Parrott, author of the study and chief economist of the New York research group. The institute defines jobs as underground if they are misclassified as independent contractor work or consist of employment by contractors who work “off the books,’’ a segment that has boomed with the explosion of residential construction in recent years.

The fiscal costs of the underground sector were $489 million in 2005 and likely to reach $557 million in 2008, the study said. “Taxpayers are forced to pick up the tab for Social Security and the other payroll taxes that go unpaid when construction workers are hired off the books,” Mr. Parrott said. “And law-abiding employers are put at a real disadvantage, forced to bear many costs shifted to them from employers breaking the law.”

Costs fall into three categories: payroll taxes for Social Security and Medicare and social insurance premiums covering workers’ compensation, unemployment insurance and disability insurance ($272 million in 2005); foregone income tax collections ($70 million); and the shifted cost of employee health care onto the workers themselves, taxpayers and other employers ($148 million).

In addition to the fiscal cost, the underground construction labor market puts workers at risk, the study said. Last year, 29 construction workers were killed on the job in New York City. Half of the deaths occurred among workers at very small construction firms and three-fourths of the workers were employed by non-union companies.

CrainsNY - December 5, 2007

November P/C rates fall 15%: MarketScout

Property/casualty insurance rates fell an average of 15% in November compared to those of a year ago, Dallas-based MarketScout reported Wednesday.

“General and excess liability rates decreased an additional 3% in November to minus 18%,” said Richard Kerr, founder and chief executive officer of the electronic insurance exchange, in a statement announcing the results. “We believe the liability rate reductions might be driven by the increased use of claims-made policies. We will continue to research this hypothesis and report our findings.”

MarketScout also found that directors and officers liability pricing has become more competitive, with D&O rates down 17% last month compared with a year earlier.

Business Insurance - December 5, 2007

GOVERNOR SPITZER ANNOUNCES CONTRACT WITH NATIONAL PUBLIC POLICY INSTITUTE ON UNIVERSAL HEALTH COVERAGE

State Selects Urban Institute to Help Develop Strategic Roadmap

Governor Eliot Spitzer today announced that the Department of Health, in partnership with the Insurance Department, will award a contract to the Urban Institute to assist the state in developing a strategic roadmap for achieving universal health insurance.

Earlier this year, the Governor announced his goal of ensuring that New Yorkers have access to affordable coverage and high quality, cost effective care. The Governor directed Health Commissioner Richard F. Daines, M.D., and Insurance Superintendent Eric N. Dinallo to develop, evaluate and recommend proposals for achieving universal coverage by utilizing a building-block approach. The plan called for an incremental effort that will draw from the experiences of other states, but will ultimately result in a plan that is uniquely suited to New York’s uninsured population and health care challenges.

“There is arguably no better use of state resources than making sure New Yorkers are healthy,” said Governor Spitzer. “We expect to model proposals that will enable us to reach that goal and avoid the significant implementation problems that have plagued other state efforts in this area. Few organizations have the wealth of knowledge and expertise of the Urban Institute when it comes to assessing the cost and coverage effects of health care reform proposals. We are confident that the funds and mandate included in last year’s Budget will be well served by the analytic work of the Urban Institute.”

The Urban Institute is a policy research organization that measures and works to resolve societal problems, improve government decision-making, evaluate social and economic programs and policy options and offer technical assistance in policy and program development. The Institute will model alternative proposals for achieving universal health coverage in New York. The analysis will include, but may not be limited to, proposals to provide universal health coverage through public and private health coverage mechanisms.
 

Governor's News Release - December 4, 2007

Deal reached to raise cash for Executive Life

New York state insurance regulators have brokered a deal that would raise enough cash from life insurance guaranty funds and property/casualty insurers to offset a projected $2 billion deficit at the insolvent Executive Life Insurance Co. of New York.

The deal would allow ELNY to make good on structured settlement annuities issued to about 11,000 accident victims and others, New York Gov. Eliot Spitzer and Insurance Superintendent Eric Dinallo announced.

ELNY, a former unit of the now-defunct First Executive Corp. of Los Angeles, was ordered into rehabilitation by a New York court in 1991. An affiliate, Executive Life Insurance Co. of California, also was ordered liquidated in 1991 and California regulators later sold it to French investors led by Altus Finance Group L.L.C.

Under the deal announced Tuesday, ELNY would receive roughly $650 million to $750 million in cash contributions, said Mark G. Peters, deputy insurance superintendent in charge of the New York Liquidation Bureau, which manages the ELNY rehabilitation.

The money will come from state life insurance guaranty associations—with a “significant percentage” from Life Insurance Co. Guaranty Corp. of New York—and from property/casualty insurers that bought ELNY annuities to fund structured settlements of liability claims, Mr. Peters said.

If ELNY failed to make payments on these structured settlement annuities, annuity holders would look to the property/casualty insurers to pay their settlements, said Mr. Peters, explaining one motive for P/C insurer participation

Business Insurance - December 4, 2007

Fitch Foresees P-C Sector Loss By 2009

The property-casualty insurance industry should end 2007 with a fourth year of double-digit returns on statutory capital, but the soft market cycle could lead to a loss by 2009, Fitch Ratings said today.

Commenting on its review and outlook for the U.S. p-c industry for 2007-2008, Fitch Ratings analyst James B. Auden said while the sector produced strong results in 2007, it is questionable whether the industry will continue that strong performance past 2008.

The industry will likely see an underwriting loss in 2009, he said.

During a telephone conference call discussing the insurance industry outlook, Mr. Auden said that after 2008 market conditions will show deterioration and make underwriting discipline more difficult for carriers as they seek market volume.

He said that insurers have enough cushion at the moment to weather the cycle downturn and he did not see a change in the cycle for awhile, which could lead to some carriers going back to bad underwriting practices.

Mr. Auden said Fitch predicts a combined ratio of 92.7 for 2007, up from 91.6 in 2006. The trend forecast in 2008 will see a combined ratio increase to 97.3.

In its report Fitch said the outlook for the p-c industry remains stable, but a shift to a positive outlook “is difficult to envision over the long term given the market’s inherent cyclicality.”

However, despite the softening, a shift to negative outlook is also unlikely due to improvements in companies’ balance sheets and capital positions.

Catastrophe losses for 2007 were light compared to the median loss over 15 years. Catastrophe losses are expected to be at $7.3 billion.

National Underwriter - December 4, 2007

N.Y. asks for 'reset' provision in terror backstop

New York Gov. Eliot Spitzer and New York City Mayor Michael Bloomberg sent a letter Monday to congressional leaders asking them to include a so-called “reset” provision in any legislation designed to extend the federal terrorism insurance backstop.

The extension measure approved by the House contained such a provision, but the Senate version does not.

The provision, which was drafted by Rep. Gary Ackerman, D-N.Y. would provide lower deductibles for insurance companies that agree to write terrorism coverage for areas that already have experienced terrorist attacks, and would lower the thresholds at which the government would provide the backstop to insurers for sites that suffer subsequent acts of terrorism.

“As you know, New York City is our nation’s most densely populated area and has suffered two severe terrorist attacks,” wrote the governor and mayor in their letter to chairmen and ranking members of the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee.

“As a result, many private insurers remain reluctant to provide a large amount of terrorism coverage within the city, and many of our buildings and large-scale redevelopment projects are unable to obtain sufficient coverage. The ‘reset’ will provide a much-needed incentive for private insurers to make capacity available in those areas where they otherwise would not offer coverage due to the perceived high risk of terrorism.”

The backstop is slated to expire on Dec. 31. The Senate bill would extend it for seven years; the House bill for 15 years.

Business Insurance - December 3, 2007

INSURANCE DEPARTMENT ISSUES DRAFT WORKERS’ COMPENSATION MEDICAL TREATMENT GUIDELINES

State’s first guidelines designed to deliver quality, lower-cost care for injured workers

Proposed medical treatment guidelines for treating workers injured on the job will benefit those workers while helping to hold down the cost of workers’ compensation insurance for all New Yorkers, New York State Insurance Superintendent Eric Dinallo said today.

“Putting medical treatment guidelines in place will mean injured workers get faster and more effective medical care at a lower cost to employers,” Dinallo said. “These guidelines will standardize treatments so injured workers get quality and appropriate care for their condition. Without guidelines, disputes and inappropriate treatments can lead to higher cost but not better care.”

Dinallo sent the State’s first ever medical treatment guidelines, drafted as a result of the 2007 Workers’ Compensation Reform Act, to the Workers’ Compensation Board today for its consideration in promulgating regulations.

Previous reforms enacted in accordance with the Act have resulted in an employer cost reduction for workers’ compensation of more than 20%, a savings of about $1 billion per year, and encouraged new competition among insurance companies in order to further reduce premiums. The reforms are expected to reduce the time required to resolve disputed workers’ compensation claims by more than half, getting benefits to injured workers much more quickly.

The medical treatment guidelines were developed under the guidance of the Department’s Workers’ Compensation Reform Task Force, headed by Executive Director Bruce Topman and Project Manager Dr. Elain Sobol Berger, working with representatives of labor, business and other state agencies. The participants selected highly credentialed physicians and other professionals to serve as essential advisors in the creation of the guidelines, which express the consensus of the expert professionals.

The guidelines provide a consistent quality standard for the medical care of injured workers. They are evidence-based and reflect the sound clinical judgment of the physicians. These medical treatment guidelines translate the medical literature into a usable and practical tool that assists busy medical providers in the provision of appropriate health care.

The guidelines focus on the treatment of injuries of the lower back, cervical spine, knee and shoulder. The Workers’ Compensation Research Institute recently reported these injuries account for nearly 60% of total medical costs in New York’s system.

NY Insurance Department - December 3, 2007

A Warning About East Coast Tsunamis

The risk is low. But the consequences could be high, with deadly waves striking the coastal communities of Long Island, Connecticut and New Jersey and killing thousands of people.

Today, the federal government is announcing that it has completed the mid-Atlantic region’s risk assessments for the killer mounds of water known as tsunamis, or tidal waves.

Scientists have long considered the West Coast of North America as the side of the continent most likely to suffer earthquakes and the undersea disturbances that raise tsunamis. But in recent years, with a growing appreciation of the diverse origins of the giant waves and their potential for havoc, experts have found new reasons for vigilance along the East Coast.

“Tsunamis are a real threat,” said Lisa Taylor, an official at the National Oceanic and Atmospheric Administration, which is conducting the assessments for coastal regions that are considered at risk. A main factor is whether the land rises sharply or gently, the latter being more prone to poundings from unexpectedly high waves.

The project creates elevation maps of coastal lands and adjacent seafloors, helping scientists better forecast the areas that a tsunami would flood. The giant waves can arise hundreds of miles away, in theory giving emergency planners hours to send people to higher ground.

Part of the new analysis focuses on the easternmost area of Long Island, including East Hampton and Southampton, and the southeastern coast of Connecticut, including Mystic and Old Saybrook. The analysis also evaluates the risk for Atlantic City.

A recent federal study found that a seaquake in a deep trench off Puerto Rico could raise a tsunami that would travel for nearly five hours on the ocean’s surface before crashing into Montauk, on the southeastern tip of Long Island.

NY Times - December 3, 2007

Technology Allows Monitoring Of Teen Drivers, Raising Questions - Finding a Balance Between Privacy Rights And Preventing Unnecessary Accidents

Ever wanted to know what your teenage driver is doing with the car right now? Technology that gives parents the answer is poised to make the jump into the mainstream if some big car insurers can resolve worries about privacy.

You might already be aware that a small number of auto insurance companies are starting to offer systems that can monitor how a car is being driven, either by capturing and transmitting digital data about speed or location or capturing video of the driver. They are promoting these systems to consumers as a way to keep tabs on a newly licensed teenage driver.

JOIN THE DISCUSSION

Readers, over to you: Does monitoring teens' driving behavior violate their privacy? Discuss.Some of these systems use GPS devices to gather and transmit information about the vehicle's location and speed. Other systems offer speed, location, braking and other data, plus video of the driver and passengers. All of them speak directly to parents' fears about their kids' shaky judgment behind the wheel. These fears are well founded based on the statistics about teen drivers and accidents.

"The highest crash risk is when they first begin to drive without the parent in the vehicle," says Anne McCartt, senior vice president for research at the Insurance Institute for Highway Safety. "We do believe these devices have potential in helping teens to learn safe driving behaviors, and correct unsafe driving behavior faster than they would otherwise."

In-vehicle monitoring systems have been in use for some time among truck fleets and some company car fleets. The emergence of these virtual back-seat driver systems to keep watch over teens is relatively recent, but there are signs the concept is gaining momentum.

Last March, American Family Insurance of Madison, Wis., launched a three-state test of what it calls the "Teen Safe Driver Program." In a partnership with DriveCam Inc., a supplier of in-vehicle video technology, American Family offered consumers a system that records video of a driver's behavior and captured other data about the car's behavior such as swerving or hard braking. In the case of say, a sudden, sharp braking maneuver, the system stores video from 20 seconds surrounding the event.

$$ Wall Street Journal - December 3, 2007

Albany Panel to Assess Health Risks of Mold

It has been described by state lawmakers as posing an “unacceptable risk to New York State’s health and environment.” It drove Bianca Jagger, the former wife of Mick Jagger, from her Park Avenue apartment in 2003. It forced hundreds of residents in Westbury, on Long Island, to begin fleeing their apartment complex last week.

It is the scourge of tenants, landlords and homeowners alike, and now, state officials and Gov. Eliot Spitzer are getting serious about it.

It is mold.

Tomorrow, the first meeting of the New York State Toxic Mold Task Force will be held in Latham, N.Y., near Albany, at the headquarters of the New York State Nurses Association. The meeting of the task force, the first mold task force in the state, is an attempt by health officials and medical experts to address what they describe as a growing but little-recognized problem that has damaged property and affected the health of tenants, homeowners and their children.

In August, a group of local and state officials, led by State Senator Liz Krueger, a Manhattan Democrat, wrote to Governor Spitzer, urging him to appoint the task force. It had been created by a law signed by Gov. George E. Pataki in 2005, but had never been activated.

“Mold, some people are saying, is the new lead, which is a bad line, but it is a reasonable analogy,” Ms. Krueger said.

In New York City, mold complaints to the city’s housing agency have increased to roughly 21,000 in the 2007 fiscal year from 16,000 in the 2004 fiscal year. Mold complaints to the health department have also jumped in recent years, and legal advocates for low-income tenants say mold cases brought against landlords are increasingly commonplace in New York City Housing Court.

But the nature and extent of the health problems mold has caused or worsened in the city and around the state are largely unknown and open to debate, and the legal requirements for properly ridding a unit or building of excessive mold have yet to be established.

The goal of the Toxic Mold Task Force is to prepare a report to the governor and the Legislature that examines what is known about toxic mold, determines the magnitude of the problem in the state and looks into the possibility of further action by the Legislature or state agencies.

Think of mold, one expert on the subject explained, as a weed. They are both equally ubiquitous: A little bit of mold grows everywhere, indoors and outdoors, year round, primarily in warm, dark and damp locations. There are thousands of different types of mold, but the one that has received the most attention from the media and health officials in recent years is Stachybotrys chartarum, a green-black mold that produces what are known as mycotoxins and is often referred to as toxic mold.

For some people, exposure to mold causes hay fever-like symptoms, like nasal stuffiness and wheezing. For others, including those who have mold allergies or a compromised immune system, the reaction to mold exposure can be more severe. Mold is also widely acknowledged to be a trigger for asthma attacks.

NY Times - December 3, 2007

Tom Bower's month's roundup of recent interesting NY coverage law news

• how the results of a claim investigation were defeated by the rule against hearsay;
• an insured that was hoist on its own petard
• whether an excess liability carrier could sue defense counsel for legal malpractice.

Tom Bower's Newsletter - December 2007

Officials Criticize Betting on Death: Bill Could Prevent 'Stranger-Oriented Life Insurance'

Some investors are willing to bet that you're not going to live much longer -- and they expect to get rich from your demise.

The Ohio Department of Insurance is warning seniors to be wary of life insurance deals that companies in Ohio call a "perversion of the purpose of life insurance." State lawmakers from both parties want to stop the practice of allowing investors to bet on a person's death through "stranger-oriented life insurance," called STOLI arrangements.

"You have no idea who has an insurable interest in your life," said Rep. Jay Hottinger, a Newark Republican sponsoring legislation to end such investments. "I wouldn't feel too comfortable walking around not knowing who's betting on me to die and wanting me to die."

Luring them with offers of free insurance or quick cash, the arrangements are generally advertised to seniors ages 65 to 85, particularly wealthier folks who can take out million-dollar-plus policies.

For example, someone offers to pay your life-insurance premium for two years. If you die during that time, your designated beneficiaries get the money. If not, you can either repay the entire premium for those two years, or the policy is taken over by investors who will collect when you die.

Critics say the deals can leave seniors with less money than anticipated, an unexpected tax liability or less ability to get more life insurance. There's also concern that as more policies are cashed in instead of lapsing, it could raise the cost of life insurance for all.

CNN talk-show host Larry King recently sued his insurance broker after he sold off $10 million and $5 million policies for cash totaling $1.4 million. King said the company did not inform him of the fees and tax ramifications or of the fact that it significantly reduced his ability to buy more life insurance.

Industry Watch - December 1, 2007

S&P: Softening Prices Should Start To Affect U.S. Commercial Lines Insurers
 

Another very profitable year for commercial lines insurers, sparked by yet another exceptionally mild hurricane season, is emerging for the entire U.S. property/casualty industry, says Standard & Poor's Ratings Services.

An article recently published by S&P, "2008 U.S. Commercial Lines Outlook: Earnings Still Strong, But Weaker Prices Should Start To Hit Bottom Lines," says that unless there's a major negative surprise in December 2007 earnings for commercial lines companies will approach the record-level achieved in 2006. Balance-sheet strength for most insurers, driven by higher statutory surplus and diminished concerns about reserve adequacy, will also continue to improve.

"Still, we are not popping champagne corks just yet," S&P says. "As 2007 has progressed, we have noted with increasing concern the rate deterioration across virtually all business lines. Although the absolute level of rate decline varies substantially by source -- with insurance intermediaries suggesting higher average rate declines than are the insurers themselves or insurance buyers -- one thing they do agree on is that the rate of deterioration is accelerating. Although companies are still reporting strong underwriting results, in large part because of another exceptionally low year for hurricane losses and the decline in adverse prior-year reserve development, we believe that the margin compression on business written in 2007 will become more evident in 2008."

Insurance Journal - November 30, 2007

Insurance Agency Liable for Breach of Contract for Failure to Provide Promised Coverage; If an Agent of the Carrier, Insurer May be Liable as Well

Bedessee Imports, Inc., v.  Cook, Hall & Hyde, Inc., and Kemper Ins. Co. Appellate Division, Second Department

An insurance agent or broker such as CHH may be held liable under theories of breach of contract or negligence for failing to procure insurance either by proof that it breached the agreement or because it failed to exercise due care in the transaction.   Here, such proof was established and CCH, the agent, failed to offer contrary proof.   CCH claimed that it was acting as an agent for Kemper, a disclosed principal but that doesn’t free the agent of liability.  CCH argued that it issued a binder pursuant to authority but such a temporary policy terminates when the insurer issues a policy or decides not to do so.  Here there was proof that Kemper refused to issue the policy. Issues of fact exist, however, as to whether Kemper is liable for the agent’s conduct .

Hurwitz & Fine - November 30, 2007

Selected Opinions of the Office of General Council

Insurance Department - November 30, 2007

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