Tag Archives: Law

Insurance Q & A – Answers from Marjorie Segale

Question 2 – Workers Comp
We have an insured who is a (domestic) employee referral agency. The employee is paid their wages out of a trust account set up by the homeowner using the domestic employee. The employment contract does not specifically require a Certificate of Insurance showing that the employee is covered for workers’ compensation. We are concerned that the referral agency could be considered the employer if the hiring party has no workers’ compensation coverage. We believe they should be asking for a Certificate of Insurance showing workers’ compensation coverage from the employing homeowner.

Answer by Marjorie L. Segale AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
Director of Education, Insurance Community Center
I think you are completely correct. Anytime an employee is hurt, the Department of Labor is going to look for any responsible party to pay for the medical treatment and/or lost wages. I think that they should rightfully ask for a Certificate of Insurance (I don’t think that the absence of that requirement in the contract is a big deal). It is very common for people to ask for a COI showing coverage even if there is not a specific obligation to do so in the contract.
More Questions and Answers are on the Homepage of the Insurance Community Center



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Producer Contract Fundamentals


One of the amazing things that occurs in some agencies, even successful ones, is that often the producers have not signed contracts.

There are three main reasons for the lack of contracts.

The most common is that the agency owner and the producer has a verbal agreement. Usually the owner is reluctant to put the agreement in writing for fear that the producer will not sign one any way and might leave if forced to sign.

The second reason is that the owner just did not take the time to draft an agreement or did not know were to start. The third most common reason is that the owner feels contracts are a waste of time and money. They believe that if a producer wants to leave and violate the contract they will.

The last reason does have a bit of truth to it. However, if a producer does violate a contract, at least the owner does have a means of recourse. This is especially true if the agreement is fair.

Those who feel a verbal agreement will suffice or fail to take the time to write an agreement are playing with fire, and will get burnt. Without a contract, any dispute must rely on verbal agreements, implied agreements and common practices. The results of such disputes are up in the air. At least with a contract both sides have a common starting point in which to resolve their disagreements.

One of the biggest reasons to have a contract with a producer is to clearly state who owns the business. Producers often feel that since they generated the business they own it. Whereas many owners feel that since they own the agency, they also own all of the business. The conflict arises when these two opposites do business together.

The time and money it takes to put a contract together seems trivial when a producer with a $250,000 commission book of business walks away. Sometimes the ownership issues pop up only when the agency owner is retiring, only to find out their agency is worth a lot less because they do not own the producer’s book of business.

The Starting Point
There are many boilerplate or do it yourself contracts out there. Some of these are quite well written. They can be used as the starting point for negotiations between the parties. Or, you may choose to start with a plain language Letter of Intent that outlines all the terms agreed to by all parties.

The next step is important. HAVE A COMPETANT LEGAL ADVISOR REVIEW AND APPROVE ALL YOUR CONTRACTS. Boilerplates are fine to an extent, but laws change and vary from state to state, so never do all the contract work without an attorney who has experience with producer contracts. If you start with a Letter of Intent, the attorney can use it as the raw material for a contract.

So what are the key elements that make up a good contract? The first thing to consider is that each agency and producer is unique and that a contract can and should vary based on the circumstances. There are, however, some basic components that each contract should contain. The most common elements are:

Parties to the Agreement and Recital – State the name of all parties (individuals and entities) that are entering into the agreement. The recital provides a brief overview of the background and why the agreement is being written.

Term of Employment or Contract – State how long this agreement will run. It can be open-ended, if so desired.

Responsibilities of the Producer – Describe the duties expected from the producer. Always add a line that duties include any reasonable task requested or assigned to him/her by the employer. This is a good “catch-all” phrase.

Obligations of the Employee – Explain what the employer will provide the producer to enable them to perform their work.

Compensation and Benefits – Outline the compensation plan and any benefits provided.

Exclusive Nature of Employment – State that the employee is to devote their full-time and efforts exclusively for the benefits of the business. This section should not be included in a contract with an independent contractor.

Termination of Agreement – Describe what the rules will be for termination of employment.

Death and Disability Issues – Many contracts omit this valuable section. Make sure it is understood how the death or disability of the producer will impact the agreement.

Non-Disclosure and Non Piracy – Clearly state the importance of non-disclosure and non-piracy of the agency materials. If included in the contract, it is most likely to hold up in court.

Ownership of Accounts, Expiration Lists and Renewals – Describe how the ownership of the accounts will be handled.

Injunctive Relief and Damages – Spell out the ramification of any violations of the agreement.

Assignment of Agreement – Allow for the assignment of the contract to a third-party, such as a buyer of the agency.

Invalidity of Specific Sections – This section allows for the rest of the agreement to remain intact, if a specific section becomes invalid for some reason.

In addition to these sections, there will be additional sections related to common legal practices in a contractual agreement, such as Applicable Law, Binding Effects, Amendments, Waivers, Arbitration and Complete Agreement.

Is it Negotiable?
Some of these sections are negotiable, such as Compensation and Obligation of the Employee. It is important, however, that the agency owner not negotiate on other sections such as Non Disclosure, Assignment of Agreement and Termination of Agreement.

The sections that tend to be the most important to the owner and the producer revolve around compensation and ownership issues. The approach towards these two issues needs to be customized based on the needs, expectations and position of the parties.

Insights on how to handle producer compensation was addressed in a prior article (VVVVV). The bottom line on compensation is that it needs to be rewarding and motivating for the producer, affordable to the owner and fair to both parties.

Ownership of Accounts
There is a wide range in how account ownership is handled, or mishandled, by many contracts today. Some agreements have the producer owning it all, some have the agency own it all and some fall in between.

The problem is that sometimes account ownership has been used as the vehicle for a vesting agreement or deferred compensation plan. It is important to keep the concept of account ownership separate from the concept of a vesting agreement or deferred compensation plan.

The ownership of the accounts, renewals and expiration lists should always remain with the agency. The contract should clearly state this fact. This will prevent any misunderstanding about who owns the accounts. The vested interest, if allowed, should be strictly a financial benefit to the producer, not an ownership interest in the accounts.

If the two parties agree to some sort of vesting or deferred compensation, that should be spelled out separately from account ownership. In a vesting agreement, the producer has a vested interest in some portion of the renewal commissions generated by the accounts, while the ownership still remains with the agency. This agreement can be part of the employment contract or it can be its own agreement.

A deferred compensation plan can be effectively the same as a vesting agreement. It is probably less confusing to use the deferred compensation terminology rather than the vesting terminology, since the latter may be confused with an ownership of the accounts.

Keep in mind that a deferred compensation plan can be unrelated to the producer’s book of business. For example, the employee may earn $10,000 in deferred compensation per year of employment.

The terms of the deferred compensation or the vesting agreement needs to be clearly stated. Why bother saying that a producer is 50% vested in their accounts without describing how the value will be determined? Failure to state how the value is determined will only cause more problems.

A “rule of thumb” multiple for value is the most common approach. The main problem with a rule of thumb, such as one times commission, is that it may not reflect the fair value of that particular book of business. It makes sense to include the option for a professional appraisal if a dispute arises.

The contract can also allow the producer to buy the accounts from the agency. This makes the agreement bilateral and may help the agreement to be construed as fair in the courts. The agency, however, should always reserve the right to sell (or not).

Good producers are hard to find. For an agency owner to spend a lot of time and money finding and developing a good producer, it only makes sense to have a clear understanding of what their agreement is. When both parties know what the terms are and agree to them in writing, it tends to keep both sides honest and more likely to follow the terms.

The legal world is not perfect and valid contracts sometimes don’t hold up for one reason or another. An agency’s clients are better off with the proper insurance then no insurance at all. In a similar fashion, an agency and producer are better off with a written contract then no contract. A well-written producer contract is a form of assurance to a good relationship between the agency and the employee.

About the Authors.

Bill Schoeffler and Catherine Oak are partners in the international consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for national and international insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at print


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Italian Court Convicts 7 Scientists For Failing To Predict Earthquake

October 22, 2012 Fox News.Com


Locator map of the province of L'Aquila, in Italy.


I was shocked when I read this article while cruising all the news stories on my IPAD at 2am.  I had to re-read it first thing in the morning to make sure I had not dreamed up this crazy story.  Could this be a new trend in litigation that could happen to us here in the United States?  This was a criminal charge made against the scientists but what could stop the victims (especially here) in filing civil suits against those who did not make the right predictions.  If you think this is “crazy” read on……


L’AQUILA, Italy – Defying assertions that earthquakes cannot be predicted, an Italian court convicted seven scientists and experts of manslaughter Monday for failing to adequately warn residents before a temblor struck central Italy in 2009 and killed more than 300 people.


The court in L’Aquila Monday evening handed down six-year-prison sentences to the defendants, members of a national “Great Risks Commission.” The defendants were accused in the indictment of giving “inexact, incomplete and contradictory information” about whether small tremors felt by L’Aquila residents in the weeks and months before the April 6, 2009, quake should have constituted grounds for a quake warning. Prosecutors had sought convictions and four-year sentences during the trial. They argued in court that the L’Aquila disaster was tantamount to “monumental negligence,” and cited the devastation wrought in the southern United States in 2005 when levees failed to protect the city of New Orleans during Hurricane Katrina.


Earthquakes are, of course, nearly impossible to predict, seismologists say. In fact, according to the website for the USGS, no major quake has ever been predicted successfully.


“Neither the USGS nor Caltech nor any other scientists have ever predicted a major earthquake,” reads a statement posted on the USGS website. “They do not know how, and they do not expect to know how any time in the foreseeable future.” The verdict also calls for damage payments that could add up to hundreds of thousands of euros, Science magazine wrote.


The article specifically references “negligence” or “monumental negligence”.  It also refers to the “damage payments” that are due from the scientists.  And, the article refers to Hurricane Katrina with the levees failing—putting that loss in the same category of their earthquake.  Are they pointing a finger that we, too, should be filing criminal cases against—who…..And seeking damages from people who were negligent in warning about the potential of the levee failing?  This article has even more impact as we are living through the effects of Hurricane Sandy and the unexpected and incomprehensible damage it has caused.


Let’s hope the Italian approach to their disaster does not set any trends in our country.


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You Could be Held Responsible Under “Social Host Liability”

Dinner party at a Mandarin's house.

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Having a Holiday Party?

Having the Whole family over for Christmas Eve Dinner? You could be held responsible under “Social Host Liability”.

I do not want to be the Grinch of Christmas but we don’t want our Christmas surprise to come in the form of a lawsuit. Most of us are aware of business’s legal requirements to stop serving alcohol to people who are visibly intoxicated. This is especially true for those insureds in the business of serving alcohol. What we are not as aware of is the liability we assume by serving liquor in a social setting referred to as “social host” liability. Or when a business is NOT in the business of serving liquor but does so occasionally or incidentally which is referred to as host liquor liability.

Let’s deal first with “social host” liquor liability. We become a social host whenever we are hosting an event that serves liquor be it a dinner party for another couple or putting on a wedding in our backyard. Examples of “social host” liability could be cases where our guest gets intoxicated and hurts themselves or causes injury to others; or the situation where our guest leaves our party and is involved in an accident as a drunk driver. Or, it could be a guest that leaves your party and is stopped and ticketed for drunk driving. I know you might be thinking “my friend…my brother in law would never sue me”. Surprise! They will.

State laws differ as relates “social host” liability and not all states recognize social host liability. However there are some guidelines as to when a host serving liquor can be held liable:
-The host did, in fact, provide or serve liquor to the individual in question
-The individual was intoxicated and caused either bodily injury or property damage to a third-party
-The host was aware or “should have been aware” that their guest was intoxicated

We cannot have this discussion without broaching the topic of parents who provide alcohol to minors in their homes—who become “social hosts” to under aged people. It may be that they do not serve the liquor to the minors but make it available or they allow alcohol to be brought in their home by their children’s friends. Some parents use a thought process that goes something like this: I would rather my child drink at home than attend a party and either drive home drunk or ride with someone who has been drinking. And here is the flaw in that thought process while you think you are providing a safe haven to your child, your friend’s parents may not share your same philosophy and, in fact, you have contributed to the delinquency of a minor. If that child gets hurt or hurts others and you contributed to that harm by providing alcohol, you will be named in the ensuing lawsuit and you may find yourself being held liable. And where’s the coverage to protect you, the loving parent, for the lawsuit? The Homeowners Policy? The Umbrella Policy? And the answer is check the policy. While the Homeowner’s Policy may not have a specific liquor exclusion, most policies will have an “expected or intended injury exclusion”.

The ISO 2000 edition says the following:
E.1. Expected or Intended Injury “Bodily injury” or “property damage” which is expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”:

a. Is of a different kind, quality or degree than initially expected or      intended; or
b. Is sustained by a different person, entity, real or personal property, than initially expected or intended.

Could this exclusion be broad enough to remove coverage for the parents? Perhaps it could. Could you then look to the Personal Umbrella? Better read the form. Some forms have a liquor exclusion that applies when serving liquor to a minor.

Let’s talk for a moment about a business that occasionally or incidentally serves liquor. The Christmas season is the perfect time for this discussion. We go to our hairdressers and they offer us a glass of wine, or eggnog with a little bourbon. The office that decides rather than taking everyone to an expensive restaurant will have pizza and beer brought into the office for the big celebration. Is there coverage on the Commercial General Liability Policy for the liability of the business in these situations? Are these businesses in the “business of serving liquor”? The CGL provides automatic coverage as the exclusion only applies if the named insured is the business of manufacturing, selling, serving or furnishing alcoholic beverages. The result of this language is that a business typically has coverage for these “social” situations involving liquor.



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Murder! Covered or NOT Covered on the Landlord’s Policy?

A photograph of the the New York State Court o...

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This is a question debated more often than you might think.

If a murder occurs at a premises, when and to what extent is the landlord held legally responsible for the loss and if the landlord’s liability policy will respond to the claim. This is not a new question but one that has been adjudicated in various states over the last decades.

Let’s begin with the case of Rosales vs Stewart in 1980 ( 113CA3d130,169 CR 660.). The tenant (plaintiff) brought a wrongful death action against their landlord (defendant) on the grounds that the landlord was responsible for renting to a tenant who fired a gun on the premises that resulted in the death of the plaintiff’s daughter who was on an adjoining property at the time. In this case the court held that a landlord can be held responsible for the acts of their tenant if two tests are met:
1. The landlord knew of the tenant’s propensities for violence before leasing to him or renewing a lease or;
2. The landlord could have terminated the tenancy after acquiring such knowledge before the act was committed.

The issue of responsibility and the test imposed by the court is only one part of our concern. The second part of the question is whether this is covered on the landlord’s liability policy. Needless to say, the specific insurance policy written would have to be reviewed in order to determine this answer on a case by case basis.

By way of example we will look at a case from the New York Court of Appeals: Agoado Realty v. United International Insurance Company, Appellant, et al-Court of Appeals of New York June 20, 2000 733 North Eastern Reporter 2d213.

Let’s begin with the facts of the case. The insured owned a building in which a tenant was murdered by an unknown party. Ten months later the estate of the victim filed a wrongful death action against the landlord alleging negligent security along with other causes. The landlord (defendant) had a CGL policy covering Bodily Injury and Property Damage if caused by an “occurrence” that occurs on the insured premises. In the policy the term “occurrence” was defined as an “accident”. As is typical in a CGL, the policy excluded “bodily injury that was expected or intended from the standpoint of the insured. The landlord’s policy did not have separate language excluding “assault and battery”.

In this case the higher court held that “murder” constituted an “accident” under the policy. While the murder was “intentional” on the part of the assailant, it was an accident from the perspective of the insured. The complaint went on to allege that there was negligent security and demonstrated that the incident, the murder, was unexpected, unusual and unforeseeable from the “insured’s standpoint”. The end result and answer to the “certified question” of this case on appeal was whether murder was an accident under the landlords’ policy and therefore, covered. The higher courts opinion was that murder was a covered occurrence and the policy exclusions did not apply to the circumstances presents.

We have to give some importance to the last part of that sentence being based on the “circumstances presented” as each case has its own set of circumstances and, of course, its own policy language. Also with the understanding the various states may treat these issues differently.


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