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Tag Archives: California

Insurance Q & A – Answers from Insurance Professional

Question 1 – Workers Comp
If an employer no longer has any employees is it necessary to maintain a WC policy if the amount of time they will be without employees is unknown? If so why?

Answer by Casey Roberts, ACSR, AFIS, CIC – Laurus Insurance Consulting
As you have probably figured out by now (even though you say you are a newbie) there are very few “yes” or “no” answers in the business of insurance. Let’s say the insured is a sole proprietor and no longer has any employees. In California I would not have a problem with canceling their Workers’ Compensation policy. Note that I would be 100% CERTAIN that they have no employees. Sometimes employers work with “independent contractors” who may or may not be considered as such should a claim occur. If this is the circumstance then I would be loathe to cancel their policy.

If the insured were a Corporation or similar ownership, I would want to make certain that ALL of the officers that have the ability to select to be covered or not to be have selected to NOT be covered. I would want this in writing from the individuals. Far be it from me to cancel a policy without the knowledge of one of those that could potentially be injured and have a claim.

Another consideration is that oftentimes insurers are willing for a minimum premium charge to continue to carry coverage just in case the insured suddenly and without telling you (trust me, this happens a fair amount of the time) hires a new employee. Consider that your insured just got a job and needs someone for two or three days…are they always going to remember to call you? Unfortunately the insurance agent or broker is not always the first person they think to call.

 

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SB 863: The New California Workers Compensation Reform Laws are like “Sausages”

California Statehouse

California Statehouse (Photo credit: queenkv)

There is a saying that has been loosely attributed to Otto von Bismarck that says:  “laws are like sausages; it is better not to see them being made”.  This saying is probably insulting to the sausage industry but spot on when it comes to insurance reform laws.  The point of this saying, regardless of who came up with it, is that while the legislative process can be messy, lengthy and involve many different parties and their opinions, the result should be a well-written law that benefits society.  SB 863 certainly took a long time to come to fruition and is certainly lengthy.  California residents, including the insurance industry, can only hope that the result is beneficial.  The question is for whom:  to the injured worker; the employer; the insurance company or the attorney?  It is unlikely that it will be beneficial for all parties concerned, but perhaps that is too pessimistic. While this is a California law, it will be important not only to California broker/agents but for everyone who writes Workers’ Compensation for risks in California.

Now, before getting into the specifics of this new law, I need to tell you that I have spent the past several weeks reading this law (a nice bottle of Zinfandel may have helped) as well as countless articles, opinion letters, and blogs.  Most of the articles provided an overview with very few specifics about the reform.  So, here’s my warning before you read further:  This is a serious article and one I have tried to include all the necessary detail we will need to work with the reform as it stands at this point. We are also conducting a seminar on the topic through the community on February 13th.  Space will be limited for this very important topic. Here are the facts:

  1. SB 863 was signed into law by Governor Brown on September 18, 2012 to take effect January 1, 2013.
  2. This law was finalized after months of negotiations among representatives of labor unions and several large self-insured employers to create significant reform desperately needed in the California Workers’ Compensation system.
  3. This is the first workers’ compensation regulatory reform in California since the passage of SB 899 in 2004.
  4. Oversight and implementation of the revisions will be handled by the California Department of Industrial Relations and the Division of Worker’s Compensation.

At the core of this new law are two specific goals:

  1. Increase permanent disability benefits
  2. Cost containment for medical treatment, benefits and administration of workers compensation claims

Because the costs of the foregoing have been significantly increasing, employees and employers agreed that in order for benefits to be increased costs would have to be decreased and the process involved with the workers compensation system must be streamlined. In the past two years, the costs of workers’ compensation insurance have raised from $14.8 billion to $19 billion with a projected 12.6% increase above that in the coming months, prior this reform being enacted. Some of the changes that this law requires are fairly straightforward and involve specific dollar amounts for benefits as well as calculations for disability ratings.  Some of the other changes are not as black-and-white so we will discuss the intent along with the specifics in those areas.

PERMANENT DISABILITY

  1. Minimum and maximum weekly benefit amounts will be phased in over the next two years.  At the end of that time, the maximum benefit will be $290 / week.
  2. The permanent disability rating calculations have also been changed.  Prior to January 1, 2013, the rating formula used modifiers that range between 1.1 and one 1.4 depending on the injury.  The modifier is used to take into account the injured workers diminished future earning capacity as a result of the injury.  The rating formula will no longer include the future earning capacity modifier.  All injuries that occur on or after January 1, 2013 will be adjusted by a factor of 1.4.  The rating system also uses the injured workers age and occupation as modifiers.  Those modifiers will continue to be used. Injuries that took place prior to January 1, 2013 will continue to be calculated at the same modifier that was initially used.
  3. Section 4662 of the Labor Code provides specific circumstances under which the injury is soon to be total disability:  (1) loss of both eyes or site (2) loss of both hands or use (3) effective total paralysis (4) brain injury resulting in incurable mental incapacity or insanity.  All other cases are decided in accordance with the facts of the injury.  This section of the Labor Code has not been changed.
  4. Previously, permanent disability awards were available due to sleep disorders or sexual dysfunction resulting from physical injuries.  These circumstances will no longer qualify for permanent disability awards.  Psychiatric injuries resulting from physical injuries will no longer qualify for permanent disability unless the injured worker with either the victim of a violent crime or witnessed a violent crime.
  5. Psychiatric claims involving treatment for sleep problems, sexual dysfunction and or psychological consequences of their injuries will still be compensable under the new law.
  6. The combination of the increase in benefits and the methods used to calculate permanent disability ratings results in approximately $850 million in additional benefits for permanently disabled workers.

JOB DISPLACEMENT VOUCHERS

  1. An injured worker has been eligible to receive this job displacement voucher that could be used to pay for job retraining.  The amount of this voucher was based upon the permanent disability rating and was on a sliding scale that ranged between $4,000 and $ 10,000.  In order to be eligible for this retraining voucher the permanent disability rating had to be fully determined either by a ruling by the Workers’ Compensation Appeals Board or by a settlement agreement between the injured worker and the employer.
  2. The voucher amount is now fixed at $6,000 when the injured worker reaches permanent and stationary status and the treating physician reports on the injured workers abilities and limitations resulting from the injury.

RETURN TO WORK FUND

  1. The Department Of Industrial Relations is responsible for establishing and administering a $120 million asked per year Return to Work Fund.  The reason that this new fund is being established is to take care of the worker when their disability is disproportionately low compared to their earnings.  The new Labor Code Section 139.48 says:

139.48. There shall be in the department a return-to-work program administered by the director, funded by one hundred twenty million dollars ($120,000,000) annually derived from non-General Funds of the Workers’ Compensation Administration Revolving Fund, Eligibility for payments and the amount of payments shall be determined by regulations adopted by the director, based on findings from studies conducted by the director in consultation with the Commission on Health and Safety and Workers’ Compensation. Determinations of the director shall be subject to review at the trial level of the appeals board upon the same grounds as prescribed for petitions for reconsideration.

  1. The term director in this law refers to the director of the DIR.  Where will the money come from?  It will be 100% funded by surcharges on the Workers’ Compensation policies purchased by California employers.  The payment of benefits will not be paid by the insurance companies, but will be determined and administered by the DIR.  Any appeal from a determination of benefit will be made to the Workers’ Compensation Appeals Board.  A number of attorneys have opined that since the law specifically allows review at trial level, that it is implied their fees will be paid from the fund.  There are no current regulations that expressly provide for those payments.  The regulations to comply with this requirement have not yet been written, or at least published.

INDEPENDENT MEDICAL REVIEW

  1. This portion of the new law is designed to create a significant change in resolving medical treatment disputes.  As of January 1, 2013 for injuries occurring on or after that date and as of July 1, 2013 for all injury dates, an Independent Medical Review will be used to decide these types of disputes.
  2. Currently it can often take 12 months to resolve a dispute and requires specific steps that must be taken.  The process involves (1) negotiating the selection of a medical evaluator (2) obtaining a listing of state-certified medical evaluators (if an agreement is not reached) (3) negotiating over the selection of the state-certified medical evaluator (4) making the appointment (5) examination (6) obtaining the evaluator’s report (7) obtaining a hearing date with the judge if there is a disagreement on the evaluation (8) waiting for the judge’s decision.  In addition, the treating physician can rebut a request clarity from the medical evaluator and the evaluator may be required to submit supplemental reports.
  3. The law does proscribe the process for an injured worker to appeal an IMR determination and again, that will go to the trial level of the WCAB.  The basis for the appeal is either fraud, conflict of interest or a mistake of fact.  The IMR is only available if there is a dispute over the requested medical treatment.  It is not available to resolve other types of dispute, such as the injury itself.

MEDICAL PROVIDER NETWORKS

Due to the prevalence of complaints involving MPNs, such as including doctors who do not accept workers compensation patients and the lack of availability of care and specialty areas the bill includes several modifications of the MPN system.

  1. Removal of the current requirement that 25 percent of doctors within the Network practice in areas other than occupational medicine.
  2. Physicians must affirmatively confirm participation in a network.
  3. Each Network will have to provide medical access assistants who will help the injured worker find an appropriate doctor for treatment.
  4. The Division of Workers’ Compensation must perform continuous and random reviews.  The DWC has been provided the authority to impose penalties if the Network fails to properly address and correct access problems.
  5. Disputes regarding whether or not an injured worker is subject to utilizing a Network will now be resolved at the time of the dispute, rather than holding resolution over until the end of a claim.
  6. Treatment from a non-Network provider without authorization from the insurance company or a judge’s order will no longer be paid by the insurance company or the employer.
  7. If the injured worker obtains treatment from an unauthorized provider that is either unsuccessful or worsens the injury, those medical costs will not be paid by the insurance company or the employer.
  8. Medical reports submitted by a non-Network provider can no longer be the sole basis for a compensation award.  These types of reports must be reviewed by the authorized physician and a qualified or agreed medical evaluator.

INDEPENDENT BILL REVIEW

  1. This is a new process that is being established to resolved medical billing disputes.  This portion of the law also contains new requirements for submitting a bill and how insurance companies or employers must communicate their payment decisions to the medical providers.

LIENS

This is one of the most significant modifications to the workers’ compensation system in California.  A lien is a direct claim against the defendant typically submitted by medical providers or other service providers that the employer was required to provide.  The medical provider uses a lien to contest the employer’s determination of the amount payable for the medical services.

This legal tool is relatively unique to California and has resulted in a significant number of liens to be filed through the court system.  In 2010 there were approximately 350,000 liens filed and in 2011 approximately 450,000.  The result of this is an expense incurred by insurance companies and employers alike of approximately $200,000,000 a year.  Because of the sheer volume of filed liens the courts encouraged settlement of these liens and as a result many unjustifiable claims were paid.

  1. The bill requires that a lien filing contain certain declarations made under penalty of perjury.  The filer will also have to pay a filing fee of $150.00.  All fees collected will be deposited into the Workers’ Compensation Administration Revolving Fund.    There are also provisions for dismissal of liens after January 1, 2014 as well as a statute of limitations (18 months) for filing liens for services rendered after July 1, 2013.  Another statute of limitations (3 years) applies for services provided prior to that date.
  2. The bill also requires the employer to pay for interpreter services.
  3. The specific language in the bill relative to the subject of liens is contained in many, many pages of the bill.  Undoubtedly the wording and intent will be clarified over the course of the next several years as to the legislative intent and the various loopholes will be found by the courts, whether favorable to the employer, the injured worker or the service provider.
  4. A schedule of maximum service provider fees are to be developed and implemented.  The Official Medical Fee Schedule will be updated and will incorporate Medicare’s Resource Based Relative Value Scale.

SELF-INSURED EMPLOYERS

  1. Required to pay deposits to ensure that their responsibilities to pay losses will be to be issued by December 31stannually.
  2. The bill also precludes Professional Employer Organizations (PEOs), temporary employment agencies and employee leasing organizations from being a self-insured employer.  The bill also tightens the restrictions that could allow an illegally uninsured employer from claiming self-insured status.  The employer must receive approval from the Self-Insurers’ Security Fund.
  3. Self-insured public entities’ annual reporting requirements have also been strengthened and a required study of the self-insured public entity programs must be performed by the Commission on Health and Safety and Workers’ Compensation and a report completed with preliminary recommendation for improvement of the program by October 1, 2013.

As a conclusion to this lengthy article, this law has been touted by many different groups as a streamlining, cost-saving reform that will also include significant increase in benefits, particularly for those persons deemed permanently disabled.  The funding of the increase in benefits is supposed to be funded by the streamlining of the compensation claim process and the other procedures identified above.  Well, there is no doubt that the scope of this reform bill will have significant impact on the entire workers’ compensation system in California for years to come.  One can hope that the employers will actually see cost-savings relief and that those seriously injured workers get the help they deserve.  There is little doubt that the legal jousting will begin and continue for some time.  Thanks to all of you who have actually reached the end of this article and hope to see you in class on February 13th.Sign up on site at www.insurancecommunitycenter.com

Written by:

Marjorie Segale AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
Director of Education, Insurance Community Center & President, Segale Consulting Services, LLC
 

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Being “Nice” To Your Kids Can Get You in a Lot of Trouble

Family Portrait - Montreal 1963

 

The kids finally turned 18, out of the house off to school or their first real job and you have done what you have waited to do for years—re-decorate their room! But, this economy has changed that dream in a lot of different ways.  The kids are back, or if not physically moving back into “your” home they are back on the household payroll.  The good news is you talk to them more…th

 

 

e bad news is that they are calling for a transfer into their account.

 

I hear these stories all the time, and I, too, have become much closer to my kids! This economically driven dependence has created some very interesting insurance questions. The fact is that as the helpful parent we are creating some serious personal liability and taking insurance risk.  Here are a couple of true examples (fictitious names are used to save my friendships):

 

“Can you lease a car for me—I cannot qualify with my credit rating”

 

Sandy is a 40 year old who not a member of his mother’s household and needs to lease a new car.   He cannot qualify for the lease, so he asks his mother to lease the car in her name.

 

They have considered two ways to handle the insurance on the leased vehicle:

 

I.    Mom insures the car on her personal auto policy; give the car to him to drive; and, he will reimburse her for the payments and monthly insurance bill.  

 

When mom called her insurance agent, the agent told her that she could insure “Sandy’s Car” since she is the registered owner and the only person on the lease. The problem here is that it is just not right to do this. It is misrepresentation to the insurance company. While a small claim may not highlight this fraud to the company—when Sandy gets into a significant accident the truth will come out. The insurance company has the right to rescind coverage under such circumstances and their agent will face the consequences of bad advice. Even if they do get away with it, many insurance carriers have restrictive language in their policies regarding permissive use.

In particular, California law generally requires that automobile insurance policies cover permissive drivers under the owner’s liability policy [Insurance Code§11580.1(b)(4)] but the insurer can limit permissive user coverage by use of clear and conspicuous language to $15,000/$30,000/$5,000 [Vehicle Code §16056; Haynes v. Farmers Insurance Exchange (2004) 32 Cal.4th 1198, 1205 (finding that to be enforceable, a limitation of limits for permissive use must be conspicuous, plain and clear)].

However, if a motor vehicle owner gives express or implied permission to a person to use a motor vehicle, and that driver wrongfully (negligently or intentionally) causes injury or death to a person or damage to property, the vehicle owner is also vicariously liable [Vehicle Code §17150 ]. In fact, Owner liability under Vehicle Code §17150 generally has a maximum dollar limit of $15,000 per injured person but $30,000 per occurrence even if more than two people are injured, and $5,000 for property damage [Vehicle Code §17151; see also Vehicle Code§17155].

The permissive use statute does not limit the liability amount owed by the owner based on another viable legal theory (other than permissive use) such as, for examples, negligent entrustment to an “incompetent, reckless, or inexperienced driver” (Syah v. Johnson (1966) 247 Cal.App.2d 534, 538), and failure to properly maintain brakes (Fremont Compensation Ins. Co. v. Hartnett (1993) 19 Cal.App.4th 669). As such, an injured or damaged party will file suit against both the owner and driver for the permissive use statutes to apply [Vehicle Code§17152].

If we strictly interpret the PAP, we know that anyone can drive our vehicle with our permission and there is no time frame for the permissive use. The PAP does not say it MUST be garaged at the owner’s home although that was the address the insurance company used for rating purposes as well as the mom’s driving record.

So the first question to answer is if Sandy gets into an accident, will Mom’s policy provide her coverage for the occurrence?

Mom’s AAA policy (insuring agreement) provides that the insurer “will pay damages for which any person insured is legally liable because of bodily injury or property damage caused by an occurrence arising out of the ownership, maintenance or use of an automobile…”

Further, Mom’s policy includes as an insured, “any person using an insured automobile with your permission…” So far, so good. Based upon the insuring agreement alone, it appears that Mom and Sandy will be covered. However, the policy also requires Mom to notify the carrier if there is a change in driver. The policy provides:
“You agree to pay the premium…resulting from changes made during the policy period. Changes include, but are not limited to…(c) a change in drivers…”

The policy also contains a “Misrepresentation or Fraud” section, which provides:
“This entire policy shall be void from its inception if any person insured has misrepresented or omitted any fact or circumstance which was material to our issuance or renewal of this policy. Any statements in the application or in any documents provided to us by any insured in connection with the issuance of renewal of the policy shall be deemed material to the acceptance of the risk assumed by us under this policy, and this policy is issued in reliance upon the truth of such representations. If any person insured intentionally makes a false statement or conceals or misrepresents a material fact or circumstance that relates to an accident, occurrence or loss, or to our investigation thereof, we may elect not to provide coverage for that accident, occurrence or loss. We also may elect to cancel or nonrenewal the entire policy as permitted by law.”

Based upon the initial and continued misrepresentation as to “who” is driving the car, the insurer has a clear basis to void Mom’s ENTIRE policy from its inception. Thereby jeopardizing not only coverage for “Sandy’s Car”, but for any other vehicles insured on the policy in question.

Assuming the insurer does not find out about the misrepresentation or agrees not to void the policy upon making that determination, the next question becomes:

Does Mom’s policy cover Sandy, if Sandy gets into an accident?
To qualify as an insured under the policy, with respect to an insured vehicle, a relative must be a resident of the same household in which the named insured resides. So, should Sandy get into an accident, he will not qualify as an insured on Mom’s policy.
If Sandy has his own auto policy of insurance (say for a different auto) will Mom’s car be considered an “Additional Insured Automobile”? To be an additional insured automobile, Sandy cannot own the car (check) and it cannot be “available for regular use” by Sandy. Under the strict definition, Sandy’s own policy won’t cover him.

II. Sandy is going to insure the car on his personal auto policy.

This approach is even worse than the first scheme. Mom may think this gets her off the hook but she, and she alone, is the registered owner and subject to liability as the owner. Mom has no insurance on the car because she did not add it to her policy.

Further, Sandy has no insurable interest in the car; he is neither the lessee nor co-lessee. There would be no coverage under his auto policy or her policy for the leased vehicle.

 

Advice to Mom
1. Have your 40 year old kid move back home because he will then be a member of the household and the PAP would have a better chance of extending coverage.
2. Do not lease a car for your children in your name whether they live at home or not but especially if they are not in residence.
3. Have them get a jalopy or take the bus.

Footnote [1] “Every owner of a motor vehicle is liable and responsible for death or injury to person or property resulting from a negligent or wrongful act or omission in the operation of the motor vehicle, in the business of the owner or otherwise, by any person using or operating the same with the permission, express or implied, of the owner.” California Vehicle Code § 17150.

Next case

 

I am moving home (with the kids) so that I can start my own business

Your perfect home, since you kicked out your husband has been infiltrated by your son, wife and two children under the age of 8.  We have some significant issues to resolve and I am not talking about the play dough in the carpeting here, which is a given. The bigger concern is the fact that your son is going to start his own internet company.  He was the victim of layoffs in the industry and is striking out on his own.

 

The Homeowners is clear in its definition that an “insured” means You and residents of your household who are your relatives…  Good so far, the family is all covered on the mom’s Homeowners Liability Policy.

 

The business takes a while to get going and as soon as the big break is becoming a reality, the son decides to file a DBA and form an LLC.  He has to buy a substantial amount of computer equipment through his new company all of which is kept in the home or more often in the detached garage.

 

The insurance problems are now mounting.  We have a business operating out of the home; the business is operating in a name other than the resident relative on the policy; and a lot of expensive equipment owned by the company maintained in residence.  Hopefully you are saying to yourself NO coverage or at best very limited coverage.  Mom’s Homeowners Liability policy had problems before the son formed a company—specifically all of the business exclusions.  When he formed the company, even the limited coverage that was part of the policy was removed.  In terms of all the computer equipment, it too is not owned by the relative in residence—it is owned now by his company.  Even if you could put a claim in for loss under the Homeowners policy it would be limited for both coverage on and off the premises.  The fact that it is stored primarily in the garage brings up the very strong language that a detached garage cannot be used in whole or in part of business purposes.

 

Advice to Mom:

 

1.    While you are now the proud mother of a budding entrepreneur, have him buy a business policy to cover his liability and property.
2.    Remove the play dough with hot water and salt

 

 

 

Written By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center, Insight Insurance Consulting

 

 

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2013 Calendar of CE for Insurance Professionals is Unveiled. Complimentary Class Available.

The Insurance Community Center is proud to release the dates of its 2013 calendar of Continuing Education webinars.  Insurance professionals can now take CE classes for credit from the comfort of their office or conference room.

The Insurance Community Center (ICC), known and regarded for its excellent quality, highly regarded Continuing Education classes have just released the schedule for the first quarter of 2013. In addition to the unveiling of the 2013 calendar,  the ICC is reserving an afternoon class where California students can attend free of charge.

Classes that the ICC offers covers the spectrum of different insurance practices. Learning tracks include topics in the following subject areas: Commercial Lines, Personal Lines, Employee Benefits, Life Insurance, Contractors Insurance and Agricultural Insurance. Some of the most popular titles include: Business Income, Ethics, E&O, Intellectual Property, Homeowners, Voluntary Benefits and Construction Contracts.  New this year are titles such as: How to Insure a Manufacturer, Traps & Tricks of Personal Lines, Equine Insurance and Umbrella/Excess. The full calendar can be found at http://insurancecommunityuniversity.com/CEWebinarsCalendar.aspx

All of these webinar titles are between 2 and 4 credit hours.  The classes take place in a live interactive format, online. This allows the student to fully participate, ask questions and receive feedback all from the comfort of his or her office or conference room.

On Wednesday, November 14, the ICC is offering its popular Cyber Liability course for California agents. Anyone can join in on the class but credit if only approved for the state of CA. To register for this class, please click on the following link: https://student.gototraining.com/r/2873578383228194304. Space is limited, reserve your seat today!

 

 
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Posted by on November 7, 2012 in Insurance News

 

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Of Mice & Men

 

Yosemite

 

We are not talking here about the book “Of Mice and Men” written by John Steinbeck but; rather the recent incident In Yosemite National Park involving Deer Mice infecting visitors to Curry Village with Hantavirus Pulmonary Syndrome (HPS).  The incident was reported in early September, 2012 after a ninth person had contracted the disease that had already killed three people.  The latest guest that contracted the disease had stayed in the hotel in July and had recovered from the disease. Deer mice are the carriers of this virus and spread it to humans by their waste products left behind, in this case, in the cabins and inhaled by the guests when the virus mixed with the dust and air in the poorly ventilated cabins.  There is no cure for HPS which kills more than 1/3 of the individuals it infects.  Early detection is the key to preventing serious illness.

There are a lot of issues in play on this loss as relates the responsibilities and potential insurance exposures and solutions for Curry Village AND Yosemite National Park as a whole.  I might as well warn you now that many of the potential insurance losses may not be covered.

Notifying the Public about the infestation and disease:
This comes with a price tag and a long-term affect.  Yosemite had originally notified 30,000 visitors who slept in two specific locations in the park and then had to expand their warning by notifying 230,000 more who stayed in the general areas in the park as a precaution.  This notification goes well beyond just emails.  Representatives must make statements in the press and make every effort to manage the crisis.  Following a “crisis” it is vital that an organization communicate to the public about what occurred in order to save their reputation and limit public anxiety. This key public awareness effort and costs associated with the campaign can be covered under specialty coverage known as Crisis Management or Crisis Communication Coverage.  Coverage can be purchased as a stand-alone policy, by endorsement to the CGL or Umbrella and some companies are including limited coverage in a “bucket” of coverages they add to their policy.  Liberty Mutual, for example launched a crisis management insurance endorsement to their umbrella policy with a standard limit of $50,000 with additional coverage up to $250,000 available.

See the entire Business Insurance article at: http://www.businessinsurance.com/article/20120118/NEWS05/120119881?tags=%7C338%7C69%7C75%7C305%7C340%7C83#

Some insurance companies, such as Philadelphia Insurance Company, includes Crisis Management coverage in their package policies.  The coverage language will vary slightly and a number of specifically described coverage responses are included within this “bucket” limit.

Another crucial component to reacting to a crisis of this type is to be pro-active in having a Crisis Risk Management Plan in effect. This goes way beyond the issue of mitigating the loss when it happens to. What is important to address is the “long –term “effect of such an incident that stays in the minds of potential customers long after the problem has been remedied.

Taking all necessary measures to make sure they have eradicated the problem with safeguards put into effect that it will not occur again.

The outbreak of HPS has been linked to a higher rodent population in the national park.  The National Park Service currently has assigned two epidemiologists to work in the park trapping rodents for testing. Additional studies are being done to determine if the Yosemite rodent population is higher than normal after a record snowpack in 2011 provided ample water for the grass seeds mice favor.

“Rodents and mice are native to the park, but we are looking at the populations and working with our wildlife biologists to determine if the population is too high,” Gediman said. “There are rodents here, and we could never trap them all so that’s not going to mitigate it.” Since the first illness was reported earlier this month, employees of Delaware North disinfected all 408 canvas-sided and wood-sided cabins in Curry Village. Workers are in the midst of shoring up the cabins in an attempt to keep mice from have easy access. http://www.insurancejournal.com/news/west/2012/08/29/261096.htm

It is clear from this report that the park is taking significant measures to identify the problem; contain the problem but, admittedly, cannot eradicate the cause of the problem which is indigenous to the area.

On September 26, 2012, California public health officials and researchers announce that a groundbreaking series of studies of this rare disease have been launched and they will essentially be using the 1,200 square mile park as its natural laboratory to gain insights into this disease and its transmittal to humans.  Public health officials are also developing a voluntary medical screening of the parks’ 2,500 plus employees.

And all of this comes at a cost to the park which, for all practical purposes, is not a cost that would be covered by insurance.  Perhaps you are thinking Extra Expense would pay for these extra costs—but, look more closely at what caused this loss!

Loss of Income and Extra Expense
This is the easiest insurance answer of them all—no coverage.  It is true that the park is suffering extra expenses; it is true that the park can demonstrate that they lost income directly as a result of the illnesses caused by the rodents; it is true that the park will suffer a long-term effect of this loss to the public perception of this loss and fear to re-visit the area. The Insurance Journal Article of August 29, 2012:   “People with reservations in the affected cabins are not being notified before arrival, but they are being warned during check-in to report any sightings of mouse feces. Rangers are handing out information brochures at the park entrance warning people to avoid mice in general and mouse droppings in particular.”

This statement comes as somewhat of a surprise to me that the park would not be notifying people who have reservations about the outbreak and potential danger.  It is reported that many visitors have cancelled their reservations that have become aware of the situation in the park.

However, this loss does not meet the required elements of a covered loss under Business Income or Extra Expense coverage.  Specifically there is no direct damage AND there is a specific exclusion in the Special Cause of Loss form for:  “Nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals.” CP 10 30 10 00.

The loss of income, in this cause arises from the “bodily injury” (illness and death) as a result of rodent waste products.  Neither Business Income nor Extra Expense will come to pay in this loss.

Financial Loss to the Individual due to cancellation of their registration
The internet is taking advantage of showcasing this incident as to why an individual would need Travel Insurance. As a result of the outbreak Delaware North Cos Parks & Resort’s spokeswoman Lisa Cesaro said : “for us, we’ve had unprecedented cancellations.  There was a 20% cancellation rate on Labor Day weekend that should have been sold out. There is travel insurance and travel cancellation insurance available by many insurance providers.  Needless to say, we have to check the provisions of these policies carefully to make sure that this type of incident would be covered and reimburse the traveler for any costs they incur for cancelling their travel.

Liability Concerns
Now we look to what is going to become a focus in this loss.  Specifically if there is any liability on the part of the park and the specific living quarters that where the infections were contracted. It is reported that the tent cabins were “questionable” mentioning they  were built in 2009, meaning that up until this year people had stayed in them following harsh winters. This was the first season in which people stayed in them after a mild winter.

Jim Patton, curator and professor emeritus of integrative biology for the Museum of Vertebrate Zoology at UC Berkeley, believes the tent cabin conditions at Curry Village had more to do with the spread of the virus than the mouse population or the amount of pathogen circulating among rodents.

Eight of the nine people who contracted the disease in Yosemite slept in the higher-end “signature” tent cabins, on the east side of Curry Village between early June and mid-July. The other victim hiked and camped around the same time in Tuolumne Meadows and the high sierra camps about 15 miles away. http://www.sfgate.com/health/article/Hantavirus-outbreak-puzzles-experts-3888327.php

Read more: http://www.sfgate.com/health/article/Hantavirus-outbreak-puzzles-experts-3888327.php#ixzz27Qc23xGE

So, that leads us to a number of issues regarding liability insurance.  The first is whether or not the Park is vulnerable to any lawsuits for injury or wrongful death.  More and more information is coming to light, but here is what is known at this time:
Approximately 10,000 tourists visited Yosemite National Park this summer and 12,000 in campsites in the surrounding area.  An unknown number of those may have been exposed to the Hantavirus.  It appears that Park employees+ and private concession camp employees may have been aware of the infestation going back to 2010.  Visitors were not notified until the recent deaths made notification a requirement.

Lawyers are still deliberating whether or not there is adequate evidence of negligence to form a class-action lawsuit, but are clearly looking at individual litigation in the known cases of injury and death.

Legal liability?  If it is shown that Park staff knew and did not disclose, absolutely the attorneys are going to argue for negligence.

As a personal aside:  Fear of disclosure and cover up has caused irreparable harm over the years.  The thought that this could be the situation in my beloved Yosemite is personally very disturbing.  I spent every summer while growing up with my family there and believe that there is not a more beautiful place on this earth.

Well, let’s move on to the issue of “occurrence”.  The general liability policy defines this as “an accident, including repeated exposure to substantially the same general harmful conditions.”  So, it is possible that all of the injuries and wrongful death claims will be treated as a single occurrence, thus triggering the typical $1,000,000 limit of liability on the CGL.  If there is a sizeable deductible or self-insured retention on that CGL, the adjusters may argue that each even is its own occurrence (even if the inhalation of the virus took place over days or weeks).  Now is the time that you would like to see to things in the coverage structure:  (1)  If there is a deductible or retention, a policy aggregate to stop the loss to the insured  (2)  An Umbrella policy with really high limits of liability.  At this point, there is no way to determine the number of injured parties, some of whom may not even yet be aware that they have been injured.

That leads us to the next issue, which is the statute of limitations.  In California the statute does not begin until the date of discovery.  That means another two full years, at least, until the suit must be filed to stop the statute from applying.  Since many of the visitors are families, for the children, the statute is tolled until the child reaches its age of majority (18) and then a full two years after that.

Now, the last item is not a good one and that is the Fungus or Bacteria exclusion endorsement.  This liability exclusion doesn’t just confine itself to these two items, regardless of its name.  Now, I am not a scientist, researcher or physician, but I believe that bacteria is not a virus and thus this exclusion does not remove coverage.  But I am not going to bet against claims adjusters taking a really hard-line on this one.  Since the researchers and health officials are quick to point out that not a lot is known about this disease, Note also that some insurers do not use the standard ISO exclusion endorsement, but rather strike out on their own and remove all coverage for any microorganism or known or unknown pathogen.

The last area of discussion are the employees.  We might as well conclude this article on another easy insurance note:  If the employees are infected are they covered?  You bet.  Remember, AOE –COE (Arising out of and in the course of employment).  I think it is of interest that they will all be used as “voluntary” medical screening.  Hopefully, the Park will develop a really thorough disclaimer and release before the volunteers line up.

 

 

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center
and
Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
Director of Education, Insurance Community Center

 

 

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Valuation – The “Courts” view of Under Insurance Cases

 

The “Courts” view of Under Insurance Cases
The Good, the Bad and the Ugly!

 

The Good…..

 

We are going to start with the good which is hard to find in cases of “under-insurance”.  The good news is that California, at least, has learned its lesson after years of massive fires; earthquakes; and, we can’t forget, riots.  Whether natural disasters or man-made we have seen our share of CAT losses and learned firsthand what underinsurance; incorrect insurance or failure to place coverage, at all means when a major loss occurs.

 

So, what is the good news?  The good news is that  last year, the California Department of Insurancepassed and enforced new regulations that require all insurance agent/brokers that write residential insurance to take a class specifically in residential valuation and comply with new regulations for estimators and record maintenance.  This regulation was made as a direct result of a demand made against the California Department of Insurance by the claim ravaged insureds of the San Diego fires to go after the culprits—the insurance

 

Map showing where natural disasters caused/agg...

 

representatives—who sold (or didn’t sell) the correct coverage. This is good news because now the agents have the tools to use for estimators and a better understanding of the legal requirements.

 

This is clearly NOT a California problem only.  As I write this article, my TV is updating the status of Hurricane Isaac.  It was only a month ago that Colorado was hit by wildfires where insurers expect to pay out nearly $450 million to victims of the Waldo Canyon and High Park fires according to the Rocky Mountain Insurance Information Association. Whether it is a single property loss or one classified as a CAT loss, the insurance industry faces the question of whether the insurance written was adequate from both a coverage and limit perspective. The majority of these claims come from homeowners who have lost their homes.

 

The Bad…..

 

The “bad news” is that no matter how well we try to write the residential coverage to value, it is a guessing game at best.  Let’s begin with the basics:  how do we decide what limit to write for a homeowner? Here are a couple of the methods or a combination of approaches:

 

1. An escrow company or bank demands that a certain limit be written to cover the loan on the policy
2. An insured may request a limit of insurance to cover the amount they paid for the home
3. An insured might request the same limit that the prior homeowner had on their policy
4. The agent or representative may base the amount on the issuing insurance company’s worksheet. What we have all experienced is that there can be a significant difference from one company to another as to the amount of insurance that is being required.  What do we do then?
5. The agent or representative may base the amount may provide a secondary cost estimator based on other resources such as Marshall & Swift which provides yet another amount for the home insurance
6. The agent or representative may personally go out and inspect the property and do an on sight estimator.  The reality is that most individuals in the insurance industry have minimal knowledge of what goes in to a home inspection
7. On rare occasions there is a formal appraisal performed for insurance purposes—again another number then the one we calculated with the insurance company’s estimator
8. And we cannot forget the plea from our insured to write the very lowest amount possible so they can save money.  Trust me they will not remember that discussion when the house burns to the ground.

 

Regardless of how we determine the values, all methods have one common element which is that amount of insurance is probably too low to handle a total loss that involves all the unknown costs we never took into consideration.  This coverage deficiency is especially true in a loss that involves more than just a single home, such as in the wildfires or hurricanes, where the cost of reconstruction skyrockets with the escalated cost of labor and shortage of materials. To make these matters worse, the other coverages provided in the Homeowners Policy are percentages of the limit that was set on the Dwelling—if that amount was underinsured then the other limits may prove inadequate, as well.

 

The good and the bad……

 

The insurance industry solution to the chronic problem of underinsurance in residential property was twofold:  Guaranteed Replacement Cost or Extended Replacement Cost.

 

• Guaranteed was basically a limitless policy for the Dwelling—“guaranteeing”, as the title suggests “full replacement cost”.  But that form fell short of “full replacement cost” or any guarantee. We learned that the hard way in the aftermath of San Jose, California fires when we first “learned” that “guaranteed” did not mean the policy guaranteed to pick up the cost of all the new ordinance or laws in affect at the time of loss. This left the insureds without funds to bring their homes up to the building code requirements mandated for replacement.
• The use of “Guaranteed Replacement Cost” on residential is not readily available by most carriers.  Even if the companies are saying they are writing “Guaranteed Replacement Cost”, they are most probably issuing an Extended Replacement Cost Endorsement referred to as ERC.  ERC extends the coverage over and above the policy limit by a percentage indicated in the policy.  Typically 25% is the minimum increase.  The Extended Replacement Cost does NOT include Building Ordinance which must be written for a separate amount of insurance typically by endorsement.

 

The Ugly….

 

You are sued.  Short and simple, the claim did not go well and your client has decided to sue you and anyone else they can name in the lawsuit.  Discovery now begins often times going back years and years when you first wrote the coverage.  You will answer such questions as:

 

1. Who set the limit of insurance initially (very possibly does not even work for you anymore)
2. Who else was involved in setting limit during the term of the policy (we are talking everyone who touched that file AND the producer(s) who spoke with the insured.
3. Was the insurance reviewed annually and a new estimator completed and reviewed?
4. Is there a clear documentation trail? We are talking not just the old fashion hard copies but all the laws regulating electronic discovery.
5. Did the insured ever receive any of the estimates in writing? This is now required by law in California but best practices was that we always provided our insureds this information
6. Did the insured acknowledge receipt of the estimator and verify in writing that the amount was acceptable?

 

The reality is that, in most cases, insureds rely on their insurance agent/broker to set the policy limit and to make sure they are “fully” covered.  However, the general rule is that an insured is responsible for the establishment of the policy limit. Case law in California has, historically, been kind to the  insurance agent or broker in finding that they do not have the “duty” to suggest or volunteer that an insured should purchase higher limits or additional coverages. (Fitzpatrick v. Hayes, (1997) 57. Cal.App.4  916.  So far this sounds like good news but it is about to get “Ugly”

 

There are important cases that were decided before Fitzpatrick v. Hayes that weighs heavily on the obligation of the insurance agent/broker in setting limit.  One of the most important was Jones v. Grewe (1987) 89Cal.App.3rd 950. This case involved third party liability and the court held that an insurance agent could NOT be held liable for failing to obtain sufficient limits on a third-party liability policy.  The Jones case held that an agent could not reasonably forecast the upper limit of liability that an insured might need.  The case went on to reason that if liability were extended to agents for not obtaining sufficient liability limits that it would amount to an insurance agent being put in the position of an excess insurer.  It is important to remember that this case dealt with liability and not setting limits on property.

 

In 1992, the Jones decision was followed by Free v. Republic Ins. Co (1992) Cal.App.4th 1726.  This case involved a homeowner who specifically asked his broker whether his policy limits were sufficient to cover his home for a total fire loss.  The broker affirmed that he was “fully insured to value”. The insured sustained a loss for which he did not have adequate limit and sued his broker.  The broker was held liable. In the Free v. Republic case, the court made a distinction about “misrepresentation” in setting limits on a first party (property coverage) as opposed to a third party (liability coverage) as held in Jones v. Grewe.   The court reasoned that a broker/agent can objectively determine the amount of replacement cost value for a dwelling in the event of a total loss which is not the case of the subjectivity concerns in a third party policy.

 

In 1996 the court ruled in Desai v. Farmers Ins. Exchange, (1996) a47 Cal.App.4th 1110.  In this case the insured requested that his agent provide him with “100% coverage” for his home in the event of a total loss. The insured issued a policy for $150,000 which included earthquake and there was no Guaranteed Replacement Cost provision.  The insured suffered damage in the Northridge Earthquake with a cost to repair the home at  $546,757. The court held on appeal that the agent negligently represented that the policy provided 100% replacement cost and that the language in the policy representations found in areas such as the “value protection” clause and inflation protection that gave more credence to the assertion the insured was fully covered. .

 

Back now to   Fitzpatrick v. Hayes. (a997) 57 Cal.App.4th 916,    which was referenced in the beginning of this article. The Fitzpatrick case had the precedent cases of Jones, Free and Desai to rely on its opinion. The Fitzpatrick case set the three recognized exceptions, under California law, to the general rule of whether agents and brokers could be held liable for under insurance.  The general proposition is that an insurance agent does not have a duty to volunteer to an insured the need to procure additional or different insurance coverage UNLESS one of the three following situations occurs:

 

1. The agent misrepresents the nature, extent or scope of the coverage being offered or provided;
2. There is a request or inquiry by the insured for a particular type or extent of coverage; or
3. The agent assumes an additional duty by either express agreement or by “holding himself out” as having expertise in a given field of insurance being sought by the insured.

 

In looking through these criterion, and understanding that only one has to apply for an agent to be held liable, it is easy to see how an agent could fall in the trap.  The questions would be:

 

1. Did the agent represent to the insured that the limits were adequate
2. Did the insured specifically ask the agent if they had adequate coverage; full coverage; 100% coverage or any other qualifier of this type.

 

We spoke earlier of the practice and requirement that agents use insurance company’s estimators to arrive at a minimum amount of insurance to be offered the insured. As we go through this process with our insured, it clearly gives them a false sense of security that we know what we are doing.  It is an understatement that we have to be cautious as to how we communicate the estimator’s figures—emphasizing this is an “estimator” and this is an “estimate” only NOT an appraisal of property.  What the Fitzpatrick case cautions us is that if the insured requests full coverage or questions the agent to affirm that the coverage is adequate, and we say “yes” that the agent will fall within one of the Fitzpatrick exceptions.  There are, of course, situations where an insured never spoke with their agent about the policy limits. This may not get us off the hook, however.  This lack of communication may be because the insured has relied on the insurance agent’s expertise in the area of estimating the value and did not feel they had to get any further involved.  Even though the agent may not have had any oral or written communication concerning values; courts will check to see if there is any advertising, such as on a website, or other promotional materials that would portray the agent as “holding himself out” as being an expert. The reality is that the very first thing we do, as expert witnesses, is check out the agent’s website to read the representations that are being made.

 

The cases cited in this article are from California; however, every state has their own case law as relates to an agent or brokers responsibility for underinsurance. The legal issues we discussed here will be the same issues that each of the cases of underinsurance will contain.  I believe that other states will follow the requirement set by the Department of Insurance to mandate education and regulate how records are to be maintained.

 

The Good, the Bad and the Ugly was a lot funnier when viewed as the movie  about a bounty hunting scam to find a fortune in gold buried in a remote cemetery. (stared Clint Eastwood, Eli Wallach and Lee Van Cleef in 1966).   Unfortunately, there is no humor in a court of law regardless of what state you are from.

Witten By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center

 

 

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Continuous Trigger Re-Loaded

English: The Stanley Mosk Library and Courts B...

The first time anyone heard of a “continuous trigger” decision was back in 1995 when the California Supreme Court issued its ruling in the Montrose case.  This created a watershed moment for underwriters, claims adjusters, agents and insurance buyers alike.  The result of this decision was the insertion of “known loss or damage” language into the insuring agreement of the General Liability policy, first by an endorsement in 1997 and subsequently included the next published ISO edition.  There is a new decision by the California Supreme Court that will have an impact on the method of claim payments for continuous or repeated injury or damage.  Clearly this is significant for construction defect and some products liability claims.  Although these decisions are California jurisdiction, anytime there is a significant court decision anywhere in the country, form revisions and exclusions often follow.  In order to discuss the latest decision, State of California v. Continental Insurance Company, it is appropriate to go back to that original decision and others that followed to have a contextual understanding of how these decisions have cumulatively affected coverage and claims and will continue to do so for quite some time.

Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 655
Montrose was named as a Potentially Responsible Party in the EPA’s mandated clean-up of the Stringfellow Superfund Site in Riverside County, CA.  When this PRP notification was received by Montrose, they notified their Environmental Impairment Liability carrier but not their General Liability carrier, Admiral.  When litigation subsequently commenced against Montrose, not only by the Federal government for environmental damage, but other injury and damage claims by individual litigants, Montrose then turned to their insurance carrier, Admiral Insurance Company for defense.  Admiral declined, stating that the manifestation of these losses occurred upon notification of the PRP status, which occurred during a time that Admiral was not Montrose’ insurance carrier.  At that time, adjusters were using a “manifestation” trigger of a single liability policy to pay ongoing injury or damage claims.  The judicial review of the policy obligations to defend an insured took almost a decade to complete.  The 1995 decision by the California Supreme Court provided a strict interpretation of the policy language regarding the policies that are required to defend.  The Montrose court applied a “continuous” trigger for continuous or progressively deteriorating injury or damage.  This means that all insurers, beginning at the point a reasonable person believes that the injury or damage first began, all insurers during the subsequent injury or damage period and concluding when legal liability has been imposed.

To use a simple illustrative example:  A water pipe is damaged during construction and over the next 6 years the property sustains water damage.  It is first noticed by the property owner in 2010.  Under the old claims guidelines, the 2010 policy was triggered.  Under the “continuous” trigger, all of the policies from 2006 through 2010 are triggered.  If the damage continues past 2010, all insurers will continue to be triggered until legal liability has been imposed.

This ruling left several coverage questions unaddressed:

1. Does this decision apply to damages?
2. Can the insured stack their limits of insurance over the entire continuous time period?
3. What happens if the insured has a time period for which they are not insured during the continuous injury or damage period?
4. How does this decision affect allocation of defense and damages among the various insurers on any given loss?
5. If the insured has both primary liability coverage as well as excess liability coverage, how does each policy respond?

Each of these questions have been subsequently addressed by either California Appellate Courts or by the California Supreme Court.

Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., supra, (1st Dist., Div. 1, 1996) 45 Cal.App.4th 1, 55-57, 52 Cal.Rptr.2d 690
This ruling held that insurers on the risk must pay the insured 100% of the insured’s liability to third parties even though the insured was uninsured or self-insured for a portion of the time during which “occurrences” were occurring.

Stonewall Ins. Co. v. City of Palos Verdes Estates, (1996) 46 Cal. App. 4th 1810
The Stonewall case deals with a couple of the issues raised above.  This case involved a property owner, Papworth, who filed litigation against the City for the ultimate condemnation of his property due to actions of the City over a significant timer period, beginning somewhere around 1971 and continuing until the home’s effective destruction in 1980.  The jury awarded Papworth $1,188,791.57 as damages for negligence and nuisance and $1,881,946.70 as damages for inverse condemnation.  Judgment was entered for $1,881,946.70. Pending appeal, the underlying action was settled by payment of $1,600,000.  Of the $1,600,000 settlement, $350,000 was paid by the City, $300,000 by The Jefferson Insurance Company of New York (“Jefferson”) and $950,000 by Stonewall Insurance Company (“Stonewall”). Other insurers of the City refused to contribute toward the settlement.

The court addressed the following questions:
Question 1: How much of a judgment is the City entitled to recover from each primary insurer?
Question 2: In what proportions are the primary carriers to share in whatever payments any of them made or makes toward the $1.6 million loss?

The Stonewall court concluded:  “We find the answer to Question 1 in Montrose ‘s analysis: All primary carriers on the risk are liable to the City (up to the limits of their respective policies, less any applicable deductibles or retentions) for the full $350,000.  Inherent in Montrose ‘s conclusion that in cases involving a “continuing injury” trigger of coverage is the principle that damage was occurring throughout the period in question and that all carriers issuing primary policies for dates within that period are fully liable to the insured for the entire loss.  Once an injury triggers coverage, … the insurer must indemnify the insured for “all sums” which the insured becomes obligated to pay, whether during the period of the policy issued by that insurer or after.”

Question 2 involves allocation among the primary carriers during the time of the risk.  The Stonewall court resolved this question by stating that “because we must consider both principles of equity and principles of public policy, formulating a principle of allocation is no easy task.  Equity indicates that all insurers whose policies covered the loss should participate in the cost of indemnifying the insured.”  …”Apportionment based upon the relative duration of each primary policy as compared with the overall period during which the “occurrences” “occurred” (the “time on the risk” method).”  In this case, the court recognized that there may need to be exceptions to this allocation method and did not make it a mandatory rule to follow in future cases.  The court addressed the “other insurance” clause that may appear in the policies in question.  If that clause allows for a pro-rate allocation method, then that would dictate apportionment.  The court also applied a “horizontal” exhaustion rule, which stated that all of the primary policies would respond, and only after the total exhaustion of the primary policies limits, could the excess liability policies be required to respond.  The Stonewall decision also concluded that since the insured is entitled to payment of damages up to the limit of liability, any self-insured (or lack of insurance) is not calculated into this qualified time on the loss.

State of California v. Continental Insurance Company, et al., Case No. S170560
On August 9, 2012, the California Supreme Court issued a long-awaited unanimous decision, affirming that a policyholder is allowed to recover up to the total limits of all triggered policies over multiple policy years and may stack limits across the triggered policy periods.
For the background, we go right back to the Stringfellow Superfund Site.  The State of California was held liable for remediation costs (as high as $700 million) and sought to recover from its various liability insurers.

The Supreme Court has now ruled on each of the following points:
• Each insurer during the continuous loss has an obligation to pay the entire claim, even if only part of the damages occur during their specific policy period (“all sums”).  The Supreme Court affirmed that once coverage for continuous damage is triggered, the insurer is required to pay for all sums up to the policy limits of liability.  It rejected a pro-rata, time-on-the-risk approach.  The Supreme Court noted that “It is often ‘virtually impossible’ for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods in a progressive property damage case.  If such evidence were required, an insured who had procured insurance coverage for each year during which a long-tail injury occurred likely would be unable to recover.”
• The insured can stack policy limits across the various policy periods, even when coverage is issued by the same insurance company.  The Supreme Court affirmed the Court of Appeal’s ruling that a “no-stacking ruling” was erroneous and concluded that the insured was entitled to stack the limits of all triggered policies across all applicable policy periods.
• The court stated that an insurer can limit their exposure by including an anti-stacking provision in their policies
• If the policy contains a self-insured retention, then that SIR must be paid for each policy period

The Supreme Court reasoned that its “all-sums-with-stacking” rule has several advantages:
• It resolves, as equitably as possible, the question of insurance coverage in long-tail injury or damage
• It allows a fair distribution of coverage, paid in annualized premiums by the insured, and allows the insured to receive coverage up to each policy’s liability limits
• It allows recovery from the insurance policies by looking at the entire amount of damages , rather than requiring it to be broken into artificial periods of injury or damage

So, here’s what we are left with:

Many insured’s face long-tail injury or damage losses.  Each insurance company providing a policy can be held responsible to pay up to their policy limits but can charge the insured any retention on the policy.  There has been a long-standing argument from insurance adjusters on this issue.  There is one more case that I did not address above and that is the Armstrong decision that allows the insured to “select” a particular policy to defend and pay damages.  Should the insured tender to one carrier for defense and damages and notice only the other possible insurers?  In light of this decision, that choice may be moot as it appears that the court will allow the insurers to distribute the claim proportionately, even among their own multiple policy periods.  Watch how fast the adjusters use this decision to apply multiple deductibles and multiple retentions, even if notice was tendered to only one policy period.
We are likely going to see “clarification” in the insuring agreement regarding the issue of “all sums for which the

insured is legally liable”.  The current policies do not use this phrase and instead state:  We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

There may well be challenges at some future point on this distinction.  Stay tuned.

The court left intact a horizontal application of insurance coverage, requiring the primary policies to contribute their full limits on a pro-rata allocation basis prior to attaching the excess liability policies.  There is likely to be yet another long and costly battle among primary insurers vs. excess insurers on this issue.
In the absence of an anti-stacking endorsement, the insured is entitled to stack the policies.  That is likely to be the next industry response:  an anti-stacking provision that up until this decision, has been omitted from the vast majority of policies.  All of these decisions should concern the insurance agent as well as the insurance buyer.  From the insurance buyer’s perspective, they need to retain coverage information indefinitely.  From the insurance agent’s perspective, filing claims on the insured’s behalf, explaining how a SIR may affect their coverage response as well as the applicability of limits of liability, just got a little more complicated.
Written by:
Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
President Segale Consulting Services, LLC

 

 

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