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Tag Archives: Workers’ compensation

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 www.insurancecommunitycenter.com

 

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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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Stranger Things Have Possibly Happened

An Australia government employee was injured in a motel room while on a business trip and she wasn’t playing canasta.  While the lower court there ruled that this was not arising out of employment, that decision was overruled by the Australian Federal Court.  Now, if you think that type of claim could never happen here, consider the following:

  • Housekeeper files for benefits under domestic Workers’ Compensation claiming carpal tunnel syndrome from regularly, shall we say, servicing the “master” of the house.  The Workers’ Compensation insurance company paid loss of wages, medical and rehabilitation expenses.  Retraining was apparently not required.  As a side note, this claim was reported by the wife.

On to some other strange and just weird claims:

  • A woman working out of her house, tripped over the family dog, breaking her wrist.  The Appeals Board asserted that since the home was her work environment and she was injured while working, the claim would be covered under the Workers’ Compensation policy.
  • This claim occurred in a monopolistic state.  A number of employees were roughhousing during a mandatory team building event.  A group of them were in a canoe, saw a coworker standing on the riverbank and tried to pull him into the river.  One of the male employees grabbed him, threw him to the ground and caused a neck injury.  The Court of Appeals upheld the lower court’s decision since this was a mandatory business event.  Horseplay doesn’t necessarily remove a claim from the Workers’ Compensation system.
  •  Apparently in at least one state, smoking a little weed doesn’t mean that an injury can’t be covered under Workers’ Compensation.  A man mauled by a wild animal at a tourist park claimed employee status.  The employer argued that he was a volunteer and he had smoked marijuana that day.  The state’s Supreme Court states that he received compensation for his duties and that his habit was not the major cause of his injury and ruled in favor of the employee.
  • A group of employees were sent to a two-day training conference.  At the end of the first day, a group of the employees first attended a company
    dinner, then visited three bars over a four hour period.  After going back to their hotel, three of the employees decided they should climb out of a bathroom window onto the roof of their second-story hotel.  One of them leaned against a rail which gave way and the employee sustained injuries due to the fall.  The appellate court ruled that benefits should be denied stating that the employee’s conduct was unreasonable under the circumstances.
  • A man, working as a maintenance worker at a trailer park was asked to go into a trailer to investigate a very bad smell.  He found the decomposing body of an opossum and suffered a heart attack.  Although he had a pre-existing heart condition, the jury ruled that the injury was work related and, therefore, covered under the Workers’ Compensation policy.
  • Then there was the injury of a 21-year old man who gave a vending machine at his employer’s place of business a push to dislodge a bag of chips for a female coworker.  He suffered a displaced fracture in his neck and was awarded benefits by the state Appellate Court.
  • A co-worker’s perfume was found to have aggravated an employee’s pre-existing COPD.  The Appellate Court found that was a compensable injury as it arose out of employment.
  • An employee was off the job due to an employment-related injury when he was arrested and incarcerated for solicitation of murder (of his wife).  This was deemed to be involuntary removal from employment.  His benefits were to be continued.
  • An employee was injured while working at a fast-food establishment.  Part of the insulation of an electrical wire to a microwave oven had been removed and the employee sustained electrical burns.  The act of removal did not rise to the level of intentional tort liability, although clearly injuries arising out of and in the course of employment.

So, what is the moral of this collection?  Sometimes the employer is held responsible, even when, at first glance, it sounds absurd.  But then, humans can act in absurd and strange ways and cause themselves or others harm in the process.

Although I cannot confirm the veracity of the following, I couldn’t resist including these  claimant statements that I found at http://www.funny2.com (no – everything found on the internet is not true!).  Sometimes, it is all how you phrase it!

  • My head injuries have created a permanent increase in libido which has led to two affairs and has ruined my marriage.
  • I got my right hand first finger in the saw while helping Mike and staying out of his way. My finger bled and it affected my mind.
  • I chipped my tooth on a cookie while visiting a customer.
  • While on duty, I was hit in the face by a hand. My glasses were broke and something hit my eye. No one believes I was hit but it hurt!
  • Hot grease splashed on me and fried my thumb.
  • I was working on my job and got a pain at the end of the week.
  • Accident unnecessarily occurred on account of a misjudgment.
  • I ran down the steps and when I got to the end, my feet wouldn’t stop.
  • I had my hand in the machine while the air was off. Someone turned on switches and folded my hand.
  • I was assaulted and attacked by a vicious employee because he didn’t like me and I know it.
  • The patient was going to fall for me. I could not let this happen. In so preventing this, I caused myself damage to my knee.
  • This is for the cut on my hand, but I took the stitches out myself. However, I am filing on account of the watchdog biting me and on account of a hurt I got in a fall in the paint shop.
  • In performing the job of which I am capable, I didn’t know the machine was on and was showing my new helper what not to do and did.
  • I was proving that I could carry an air compressor and I strained my back.
  • I looked into the hose to see why the water did not come out. It came.
  • I sprained my ankle the same way I sprained my ankle before.
  • I hit my arm against the hopper, and got flea bites.
  • That night I done something I shouldn’t-a done and now my back hurts.
  • A gate hit my foot while my back was turned, closing the other side.
  • Customer thought she needed the brakes adjusted. She drove the car into the station, could not stop the car, came through the door and pinned claimant against the cash register.
  • I was removing a blouse for a customer and which time I injured my back.
  • I inherited this occupational disease.
  • Acting on behalf of my employer, I hit another automobile.
  • In order to avoid a person, Betty lost her balance and fell down. In one hand she had a ketchup bottle which broke on impact, cutting her hand. In the other hand she had her thumb.
  • I over asserted myself and got a hernia.
  • The doctor gave me a disease for my occupation and said I must change jobs.
  • Gears smashed thumb while holding air cleaner, while putting nipple on with right hand, while balancing air cleaner with left hand, while holding end with left hand away from right hand. Gears were not covered.
  • I didn’t know water was where I fell.
  • I fell down in the Fotomat booth while dislocating my knee.
  • Sustained back injury due to car accident which is part of his job.
  • Falling off the truck, I dislocated my pelvis and other male organs.
  • I slipped and fell and hurt everything in me.
  • I dropped my head on my foot when someone pushed their guts across the table without calling out (from a slaughterhouse employee).
  • The fumes were so bad I was taken by them and went to bed with the doctor.
  • The guy I work with went ape s4%t. He hauled off and punched me in the jaw and then tried to rip my throat out.
  • Carrying roll roofing, I caught my toe on a piece of tin that was froze in the ground. The tin flipped against me causing me to trip, letting the roofing fall into the bucket of tar. Tar splashed out, burning my arm, and causing me to jump back into the ladder which fell against me, knocking me into the building, breaking my tooth. Thus I burned, bumped, and broke me.

 

  • 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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Current State of Insurance Marketplace 2012

With worsening results of profitability in the P & C sector in the US insurance marketplace for the past several years the industry has been in what can be described as a state of suspended animation.

As of January this year, the majority of industry leaders believe that the market is now in the beginning stages of a hard market.  A survey conducted by the Insurance Information Institute (www.iii.org) at the 16th annual Property/Casualty Insurance Joint Industry Forum revealed the opinions of some 260 insurance executives regarding the following:

  • 63 percent of respondents believe there will be an improvement in personal auto and 67 percent expect an improvement in homeowners
  • 72 percent of respondents expect an improvement in commercial lines
  • 55 percent do not expect an improvement in workers compensation.
  • 67% believe that premium growth will be higher;
  • 78% expect an improvement in profitability in 2012

The majority of reinsurance treaties renewed January, 1st and in certain areas, such as catastrophic loss, those reinsurance rates increased significantly.  As often happens, those additional business expenses are slowly trickling down to the insurance buyer in some areas of the insurance market.  The market appears to be reacting as it often does with some fragmentation and volatility; some mid-market and large accounts are seeing property rate increases while the smaller accounts have seen only slight increases in pricing.  Poor returns on investments and continuing large catastrophic losses have also had their impact on the current market.

What is striking is that within three months, insurance executives opinions have changed from 87% believing that the market is soft or at the bottom of the cycle, to 78% today believing that we are at the point of price increases.

So the soft market cycle that we have been in since 2006 seems to shifting and entering a new phase.  Could it really be the return of a “hard market”?  As is often the case, you will know it when you see it, but all indications are present.

What does this mean to you and your client?  Well, more revenue for you, but your clients deserve a heads up, particularly if they are in the manufacturing, wholesale, retail or construction business as future contracts need to be written to include the higher cost of insurance.  The previous hard market came at a time when the overall economic outlook was not as grim, so this may be a very hard pill to swallow for some of your clients.

 

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Who pays? Hopefully some type of insurance policy.

A sub-contractor employee was severely injured on a jobsite.
The employee has a very long recovery and it is doubtful that he will ever work in construction again.  The employee seeks legal counsel to check on his rights to sue.  The attorney informs the employee that his employer has already satisfied their legal obligations by securing workers’ compensation coverage that has been paying his medical benefits and lost wages all along.  The attorney advises him to seek legal recourse against the general contractor who was in charge of jobsite safety on this project.  The suit was filed and served upon the general contractor.  The general contractor in turn seeks legal advice and tenders the lawsuit to the subcontractor under a cross-complaint.  Now, normally everyone would look to the construction contract to see what the indemnity provision has to say.  However, in this case, that will not help; there was no contract.  The general contractor contends that the injury would have never happened but for the lack of training and lack of safety procedures by the subcontractor.

What policy responds for the subcontractor?
Is it the General Liability policy?  No.  There is an exclusion for bodily injury to an employee.  The exception for action over claims where liability has been assumed in an “insured contract” does not apply in this case.  Even though an indemnity provision does not have to be in writing, an oral contract could suffice to trigger coverage.  However, neither the general contractor nor the insured subcontractor contends that such an indemnity agreement exists.
In fact, it will be the Employer’s Liability section of the Workers’ Compensation policy.  This type of claim is often referred to as an action over, over action or liability over (synonymous terms).  The Employer’s Liability section includes an exclusion for liability assumed under a contract and for this reason, the majority of these types of action over claims often go to the General Liability policy to respond.  In this case, there is no contract, therefore the claim will go to the Workers’ Compensation Part B.  Keep those limits high!

Written by:
Marjorie Segale (AFIS, CISC, RPLM, CIC, CRIS, ACSR, CISR)
Director of Education, Insurance Community Center

 

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Errors & Omissions Claims Management

It Doesn’t Get Easier.

The producer gets a call from a new prospect.  What they want is simple enough:  General Liability coverage with $1,000,000 per occurrence and $2,000,000 Aggregate and Workers’ Compensation on a minimum premium basis.  Since this is a local account, the producer makes an appointment to go out to meet with the prospect.  Turns out the prospect is a small artisan contractor that performs some fabricating in their work shop that is separate from their residence.

The producer discusses the following:
Where is the shop insured?  Answer:  Through my (direct writer) homeowner’s policy and no, I don’t want a quote.

Do you want coverage on your shop equipment and tools that you might use on the job site?  Answer:  Sure, give me a quote and depending on the price, I might take that coverage.

If your shop burns down, could you lose income and have to pay extra expenses to keep going?  Answer:  Well, I don’t see that happening so don’t give me a quote.  I just want the liability, workers’ compensation that my contracts require and I might take the tool coverage.

The producer goes back to the office, prepares a quote, provides it in writing and it is accepted.  The producer has the insured fill out the application, sign and date it.  A policy is requested, received and sent to the customer along with a coverage summary.  The policy is cancelled three months later for non-payment of premium.  The customer contacts the producer and requests a reinstatement.  The insurance company was unwilling to do so and a second carrier was contacted, a quote provided and the whole process is performed again in exactly the same manner.  This time the payments are made on time.  Six months later, the shop burns to the ground.

Result:  The direct writer denied the claim for the shop due to business use and an exclusion in the homeowner’s policy.  The customer claimed that he had requested that coverage, but nothing in writing.  The customer then filed an E & O claim against the commercial coverage agency, claiming that he thought his coverage included business income and extra expense coverage, even though nothing in the proposal or coverage summary indicated that coverage had been purchased nor anything to indicate the coverage request on either of the two applications the insured completed.

Did the agent do anything wrong?  No.  Could the agent have taken the step of advising the customer of the lack of coverage for the building and or business income coverage?  Yes.  However, in no way had the producer indicated any special knowledge or established any special circumstances that would indicate a higher degree of care other than the ordinary duty of an insurance agent required to place what had been requested.

This case is still in litigation, thus the final result is not yet known.  However, as you might imagine, this case has taken time from other agency business and has thus impacted the overall earnings of the agency.  This really is one of those cases that the reason for E & O coverage exists.

No matter how hard you try – sometimes it is just not enough.  It can get discouraging, but don’t give up.  You really can reduce your exposure and still keep a viable business moving forward.

 

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