Category: Commercial Insurance

Don’t sell me detergent when I want a TV!

Most of us think consultative sales techniques need only be applied to big ticket items like large software purchases or luxury cars. Not true.

Unless your business involves asking, “Would you like fries with that?” you probably should be selling consultatively.

Here’s a great example.

A new warehouse membership club opened in my neighborhood. I’d never been to this particular brand of store before so I went in to check it out and get my free 30- day membership. At the customer service counter, I was greeted by a representative who immediately went into a sales spiel. Although memorized, I have to admit it was pretty impressive. Her goal was to get me to forego the free membership and join on the spot. She presented me with offer after offer after offer to do just that. Apparently, my $50 investment on that day would have netted me about a billion dollars in coupons. The sheer length of her pitch and her seasoned delivery almost had me. Almost. Because the second she stopped talking, I had a second to think. I looked at the vast array of coupons and realized I didn’t even use half the stuff. My answer was no.

I can’t fault her. She was doing her job as instructed and she did it well. But what if she had been trained to ask just a couple of questions before her pitch?

  • 1. Are you a regular warehouse shopper?
  • 2. What types of products do you buy most often?

If she had known the answer to these two simple questions, she could have simply tailored her pitch for me – and gotten the deal.

If she had known more about my experience with warehouse clubs and my particular interests (i.e. household products vs. electronics) she could have easily geared her presentation to my needs without the distraction of extraneous information. She might have even cited specific savings opportunities based on my interests. Offering a potential customer many broad choices, especially things that aren’t important to them, can actually kill a deal rather than reinforce it. As customers, we only want to buy what’s valuable to us!

Except for the most mundane of purchases like gas for our cars, transactional sales are a thing of the past. Today, each prospective customer is a target and our job is to shoot the arrow right into the bulls eye in order to get the deal.

One final observation: once I said no to joining, my rep’s attitude did a total reversal. The smile went away and she rushed to process my free card as though she were trying to get rid of me. In sales, it’s important to remember, a “no” might just be a “no, for now.” Just because I don’t buy today, doesn’t mean I might not buy tomorrow or refer a potential customer. Never miss the opportunity to create an ambassador for your company. Often, people who sing your praises may not even be customers – just people who think you’ve got something special to offer.

Did You Know? The U.S. Longshoreman and Harbor Worker’s Compensation Act can Apply to Injuries within the Territorial Waters of Another Country

The U.S. Longshoreman and Harbor Worker’s Compensation Act (Act) was enacted to create a uniform system to compensate longshoremen and harbor workers for workplace injuries that did not depend on the precise site of his or her injury. However, the Act states that such compensation will be provided “only if the disability or death results from an injury occurring upon the navigable waters of the United States.”

Given this apparent territorial limitation, would a longshoremen or harbor worker injured on a foreign shoreline be covered by the Act? Under the right circumstances, the answer is yes.

In one case, for example, a court held that an injury suffered by a citizen of the United States, whose employer was based in the United States, and who was living and working aboard a U.S. flagged barge, was covered by the Act, even though the injury occurred in the territorial waters off Sakhalin Island, Russia.

In this case, the court rejected the employee’s argument that the Act did not apply because his injury did not occur upon the navigable waters of the United States. The court noted that the term “navigable waters of the United States” was not defined in the Act. Importantly, the court found legal precedent supporting the position that the Act’s protection does not stop where the high seas begin, which is generally three miles offshore.

Additionally, the court cited two significant reasons to conclude that the Act applies extraterritorially. First, the court reasoned that the purpose of providing a uniform compensation system would be frustrated by limiting the Act to territorial application. Second, the court noted that the Director of the Office of Workers’ Compensation Programs of the Department of Labor, which is the policymaker designated by the Secretary of Labor to administer the Act, has consistently interpreted the Act to overcome any presumption against extraterritoriality.

Consequently, the court held that in a case which did not involve any choice of law issues, and which involved an employer, an employee and a vessel based in the United States, the employee’s workplace injury meets the Act’s situs requirements for exclusive coverage.

It is important for employers to understand that, in many cases, it is the injured employee who is arguing against the applicability of the Act. Why? Provided an employer does not fail to pay the required compensation, an employer’s liability under the Act replaces all other liability to which the employer may be subject.

If you would like more information about workers’ compensation insurance coverage, including coverage under the U.S. Longshoreman and Harbor Worker’s Compensation Act, please contact us.

Healthcare Reform Prompts Many to Explore Alternatives to Health Benefit Programs

The passage and continued implementation of Healthcare Reform, as well as its uncertain political future, have placed employers in a precarious position with their health benefit programs. Nevertheless, employers continue to do their best to balance the need to attract smart and sophisticated employees by offering well-rounded health benefit programs with the costs of providing such programs.

It is important that employers succeed in their balancing act because health benefit programs remain pivotal in attracting and retaining top-notch employees. According to a study performed by MetLife, employees make the financial security and protection of their families a top priority, and many believe that this requires sound health benefit programs. According to the study, employees who are satisfied with their health benefit programs are more likely to remain satisfied with their jobs from year to year.

Research done by the Personal Group revealed that 40% of employers plan to review their health benefit programs, and that employers are beginning to explore the various options that will (or may) be available to their employees under Healthcare Reform. According to a Towers Watson’s 2012 HealthCare Trend Survey, in 2014, when healthcare exchanges are scheduled to become available, employers will begin to reconsider and redefine their role in providing healthcare benefit programs in light of the new options. Since healthcare exchanges will give employers an alternative to the traditional sponsoring of health benefit programs, many employees are beginning to view individual health care plans as a viable option.

At Setnor Byer Insurance & Risk, we have been successful in finding attractive solutions for those of our clients exploring new options. We would be pleased to have the opportunity to assist you in effectively navigating this transitional period, as well. Please visit our website at http://www.setnorbyer.com to view and compare our various health plan options.

The Volunteer Protection Act: It Does Not Protect Those Who Rely on Volunteers

The Volunteer Protection Act of 1997 (VPA) is a federal law designed to promote volunteerism by protecting volunteers from liability if an injury occurs while they are volunteering. Many organizations relying on the services of volunteers assume that the protections afforded by the VPA extend to the organization itself. Unfortunately, this assumption is incorrect, and the consequences of this misunderstanding can be severe.

The extent to which many organizations are dependent upon the services of volunteers to sustain or complete their objectives is reflected in a survey conducted by the U.S. Bureau of Labor Statistics, which reported that approximately 62.8 million people volunteered their time in 2010. Given the scope of volunteerism, it is critical to have an accurate understanding of what the VPA does, and perhaps more importantly, does not do.

The VPA, which is designed to “promote the interests of social service…by reforming the laws to provide certain protections from liability abuses related to volunteers,” only protects those individuals who volunteer for a governmental entity or a nonprofit organization, such as a tax exempt organization described in Section 501(c)(3) of the Internal Revenue Code, or a not-for-profit organization organized and conducted for public benefit and operated primarily for charitable, civic, educational, religious, welfare, or health purposes.

Those who volunteer for a governmental entity or a nonprofit organization are generally protected by the VPA if:

  • the volunteer was, if required or appropriate, properly licensed, certified, or authorized by the appropriate State authorities to perform volunteer’s activities; and
  • the harm was caused by the volunteer’s simple negligence, rather than by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the person harmed.

However, even if the foregoing conditions are met, a volunteer for a governmental entity or a nonprofit organization will not be protected by the VPA if:

  • the harm was caused by the volunteer operating a motor vehicle, vessel, aircraft, or other vehicle for which the volunteer is required to have an operator’s license or maintain insurance;
  • the volunteer’s misconduct constitutes a violent or hate crime, or involves a sexual offense or civil rights violation for which the volunteer was convicted; or
  • the volunteer was under the influence of intoxicating alcohol or any drug at the time of the misconduct.

While the VPA may help an organization recruit and retain volunteers, it does not protect the organization itself. In fact, the VPA provides for precisely the opposite: “Nothing in [the VPA] shall be construed to affect the liability of any nonprofit organization or governmental entity with respect to harm caused to any person.” Despite this clear language, confusion remains regarding the extent to which organizations are protected by the VPA.

One possible explanation for the confusion may be that states have enacted their own laws addressing volunteer liability. While volunteer liability laws may vary among states, sometimes significantly, they generally focus on protecting the volunteers, not the organizations.

For example, Florida’s Volunteer Protection Act, which applies to “any person who volunteers to perform any service for any nonprofit organization,” provides that if a volunteer is shielded from liability under the statute, then the nonprofit organization shall be liable for any damages. Although considerably different than Florida’s statute, Mississippi’s statute protects a “qualified volunteer,” rather than a “volunteer agency,” from liability for any personal injury or property damage.

Given this lack of protection, volunteer organizations must recognize that they face nearly identical risks as their for-profit counterparts. Simply because an organization utilizes the services of volunteers for civic or charitable purposes does not mean that the organization, or its volunteers, cannot cause injury or harm to another. Volunteer organizations do many of the same things businesses do, such as own or lease premises, perform services, drive cars, and otherwise interact with the public.

Since the activities are similar, so too are the risks. Accordingly, volunteer organizations must approach risk management in the same way as any other business: implement a risk management program designed to identify and control exposures to loss; and maintain adequate insurance coverage that will protect against such exposures, including any exposures unique to a particular type of activity.

The Volunteer Protection Act, along with similar state laws, are designed to encourage people to volunteer their time and effort to the cause of their choosing. This goal is accomplished by protecting the volunteers, not the organization. The reality is that despite their benevolent purpose, volunteer organizations are not immune to the risks and liabilities endured by virtually every other business organization. Unfortunately, the consequences of failing to minimize the risks and control the liabilities could be far greater: people often rely on charitable organizations for much more than just goods and services.

If you would like to learn more about the controlling the risks facing your nonprofit organization, please contact us.

Collecting Unpaid Assessments: Options for Proactively Pursuing Delinquent Unit Owners

Today, condominium residents are feeling the pain of their neighbors’ financial struggles, particularly in the form of budgetary shortfalls created by unit owners defaulting on their obligation to pay assessments. Assessments, which represent each unit owner’s share of the funds required to pay the association’s common expenses, are the life-blood of an association. The revenue generated by assessments enables the condominium association to undertake the maintenance, management, and operation of the condominium community. Unfortunately, the current slump in the housing market, particularly in Florida, has hit condominium communities especially hard.

Many unit owners simply cannot afford to pay their assessments. Many speculators looking to flip their units for a quick profit have simply disappeared. Additionally, condominium associations may not receive assessment payments from residents whose units are in foreclosure. Whatever the reason, the result is that many condominium associations are not receiving the revenues required to manage and maintain condominium property.

Associations in this situation are often caught in a “lose-lose” situation: raise assessments and risk causing additional unit owners to default. The alternative of doing more with less does not come without risk either. For example, an association choosing to cut amenities or delay necessary maintenance can render the community less attractive to prospective purchasers, or allow the community to fall into a state of disrepair, thereby continuing the vicious cycle.

Fortunately, there are various options authorized by law to maximize the likelihood of successfully collecting unpaid assessments. Importantly, such options, including those listed below, may not be applicable, or may actually be prohibited, in certain situations. For example, suspending a unit owner’s right to use association property may constitute a violation of the automatic stay under the Bankruptcy Code. Thus, legal counsel should be sought before embarking upon one or more of the following options.

Suspension of Rights to Use Common Elements and Voting Rights

Failing to remain current with monies due to the association, including assessments, may jeopardize a unit owner’s right to enjoy the use of the common elements. If a unit owner is delinquent for more than 90 days, the association may suspend the unit owner’s right to use common elements, common facilities, or any other association property until the balance is paid.

The Condominium Act provides that a suspension may be extended to include a unit owner’s occupant, licensee—for example a social guest, or invitee—for example a business guest. However, such a suspension cannot apply to any limited common elements intended to be used only by that unit, common elements that must be used to access the unit, utility services provided to the unit, parking spaces, or elevators.

It is important to note that such a suspension may only be imposed after it has been approved at a properly noticed board meeting. Additionally, once the suspension has been imposed, the association must notify the unit owner of the suspension in writing by mail or hand delivery. If applicable, such notice must also be given to any occupants, licensees, or invitees covered by the suspension.

A delinquent owner’s right to participate in the association’s decision-making process can similarly be limited. Until all amounts are paid in full, an association may suspend the voting rights of a member who is more than 90 days delinquent in paying any monies due to the association.

Charge Interest and an Administrative Late Fee

Assessments and installments on assessments that are not paid when due, bear interest at the rate provided in the condominium’s declaration, if not unlawfully excessive. If the declaration does not include an interest rate, then the appropriate interest rate shall be 18 percent per year.

If authorized by the declaration or the bylaws, an association may charge an “administrative late fee” of up to $25 or five percent of each installment of the assessment, whichever is greater. This fee may be charged for each delinquent installment for which the payment is late. Any payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment.

Monitor (Nudge) Foreclosure Cases Filed by Lenders against Unit Owners

Since the number of lender-initiated foreclosures has soared in the past few years, it is not surprising to learn that foreclosure rates in some condominium communities approached fifty percent. Since these lenders typically hold superior rights, many associations are reluctant to take action during a lender’s case. Unfortunately remaining passive can prove costly.

During foreclosure there is often little incentive for unit owners to pay assessments. Primary lenders (first mortgagees) are not responsible for unpaid assessments until after the lender takes title to the property. However, once a lender (or its successor) takes title to the unit through foreclosure, it generally becomes liable for the lesser of: 1) unpaid common expenses and regular periodic assessments coming due during the 12 months immediately preceding the acquisition of title; or 2) one percent of the original mortgage debt.

Seeking to delay their liability for unpaid assessments, lenders often allow their foreclosure cases to languish in court. Given the importance of collecting unpaid assessments, even in part, associations should not tolerate long delays. Steps can be taken to commit the lender to a schedule, and remind the lender (and the court) that an interested party will not tolerate unwarranted delays. So, if one or more units seem to be lost in foreclosure, an association should consider discussing its options with legal counsel.

Deficiency Claim

Since a lender’s liability for past due assessments is limited by statute, it is likely that a deficiency for unpaid assessments will remain once the lender’s foreclosure is final. Since unit owners are liable for these unpaid assessments, condominium associations may consider pursuing a deficiency claim against prior owners.

In practice, deciding whether to pursue a deficiency claim will often hinge on the collectability of prior unit owners. Therefore, significant effort will focus on discovering whether a prior owner has sufficient, non-exempt assets to justify the effort and expense.

Those who filed for bankruptcy during their foreclosure will likely be uncollectible, whereas those who purchased one or more units for investment purposes may have unprotected assets. Legal counsel should be consulted to create a profile of optimal targets for a deficiency claim.

Demand Rent Payments Directly from Tenant

Since the struggling real estate market made it virtually impossible to sell condominium units, many owners opted to generate revenue by renting their units. Too often, however, many unit owners failed to use their rental income to pay their condominium assessments. The recent strengthening of the rental market has served to increase the occurrence of this problem.

If the owner of a rented unit is delinquent in paying any amounts due to the association, including assessments, an association may essentially intercept the tenant’s rent by demanding that the tenant make rent payments directly to the association. The Condominium Act outlines the manner in which an association can go about demanding receipt of a tenant’s rent payments. However, given the technical nature of the process, which was amended on July 1, 2011, a condominium association should seek the advice of legal counsel before moving forward with this option.

File and Foreclose on a Lien for Unpaid Assessments

In the past, filing a lien for unpaid assessments has been an effective collection strategy because many unit owners had too much equity to risk foreclosure for a relatively small amount of money. The mere notice of a lien was often enough to compel payment. Today, the relative rarity of encountering a unit owner with positive equity means that condominium associations must contemplate the next step—foreclosing on the lien.

Since those who are delinquent with their assessments are probably also delinquent on their mortgage, many associations previously dismissed foreclosure as a viable option because of the lender’s superior lien. What is the point of foreclosing if the lender can step in at any point and essentially nullify the association’s effort and expense? Things have changed.

The volume of foreclosure filings, coupled with many lenders stalling their cases, may provide associations with a window of opportunity. Associations committed to an aggressive foreclosure campaign can take advantage of a strong rental market to generate revenue by turning their foreclosed units into valuable rental properties.

This approach, however, is not without risk. For example, given the costs of foreclosure and unit renovation, the association may not have enough time to turn a profit if a lender quickly asserts its superior rights to the property. Nevertheless, associations discussing the risks and benefits of lien foreclosure with their legal counsel may find the option more palatable than ever.

Condominium unit owners have common interests beyond the pool and the clubhouse. Because residents share expenses, they have a vested interest in the financial health of their fellow unit owners. With fewer residents contributing, associations must be proactive and (cautiously) aggressive when pursuing unpaid assessments. Otherwise, associations will quickly discover that the financial hardships of some unit owners will be felt by all.

If you would like to learn more about condominium practices and procedures, view our library of courses, or contact us directly.

But I Don’t Even Live in California! The Case for Earthquake Insurance Coverage

On August 23, 2011, a 5.8 magnitude earthquake centered near Mineral, Virginia was felt from Alabama to Ontario. Many of those affected did not know that earthquakes could happen in places like New York City, Washington D.C., or Philadelphia. These people held the common, but mistaken belief that earthquakes generally occur only on the West coast of the United States, particularly in California. Unfortunately, the reality is that earthquakes pose a national threat.

According to the United States Geological Survey (USGS), the federal agency responsible for nationwide recording and reporting of earthquake activity, earthquakes pose a significant risk in 39 states. This risk affects more people than ever before because a majority of the population lives in seismically active urban areas, including New York City, Boston, St. Louis, Memphis, and Boise. Consequently, the number of people who face some risk of experiencing an earthquake is significantly higher than generally understood.

Those having the misfortune of experiencing an earthquake can expect property damage caused by ground vibration or shaking, landslides, and ground failure, as well as secondary disasters, like fires, dam failures, avalanches and tsunamis. Losses may be direct, such as damage to buildings, contents, machinery, and equipment, or indirect, such as business interruption losses, loss of property value, loss of rental income, and additional living expenses.

Unfortunately, as with most natural disasters, earthquakes vary in terms of severity, so the extent of any property damage is difficult to predict. However, as seen in Haiti, the damage caused by a powerful earthquake can be complete. And, as witnessed in Japan, devastating property damage can result despite the strictest of building codes and retrofitting requirements.

The inability to prevent property damage caused by a powerful earthquake means that rebuilding and replacing property is often the most effective way of dealing with earthquake-related damage. As a result, insurance coverage may be the best way to adequately deal with property losses caused by an earthquake.

Regardless of the importance of earthquake insurance, most standard residential property insurance policies do not cover damage or loss occasioned by an earthquake. Standard commercial/business insurance policies similarly exclude earthquake losses. Those seeking insurance to cover earthquake-related structural damage or losses of personal property must usually purchase it separately.

Earthquake coverage can be purchased as an endorsement to standard residential and commercial policies. Alternatively, earthquake coverage can be purchased as a separate policy. Regardless of the manner in which earthquake insurance obtained, an insured’s particular situation must be evaluated before deciding on specific coverages and limits. In addition to situation-specific considerations, an insured needs to understand various aspects of earthquake insurance policies which could affect or undermine the effectiveness of the policy.

The cost of an earthquake policy is dependent upon various factors, such as the age of the property, the type of construction, such as wood frame or brick, the existence of any earthquake resistant construction or retro-fitting features, the financial strength of the insurance company, and the deductible. Additionally, the location of the property in an area that is particularly prone to earthquakes will significantly increase the cost of the insurance coverage.

As with other types of insurance, earthquake insurance policies carry deductibles which must be paid by the insured before the insurance company is required to respond to a claim. Since earthquake insurance deductibles can range anywhere from 2 percent to 20 percent of the coverage limit, care must be taken to find the appropriate balance between reduced premiums and unaffordable deductibles. Any coinsurance provisions must also be examined to avoid the imposition of a penalty in the event of a claim.

Residential earthquake insurance policies can protect an insured’s dwelling, contents, garages, pools, fences, and various temporary/additional expenses. Additionally, an earthquake policy may cover any increased rebuilding costs necessitated by updated ordinances or laws which govern the manner in which construction must be undertaken.

On the commercial side, insureds can obtain earthquake insurance to cover various risks, including:

  • risks related to manufactured goods in transit or at permanent locations;
  • builder’s risks involving damages to property in the course of construction;
  • earthquake sprinkler leakage coverage;
  • mortgage insurance for default losses to protect against losses caused by defaulting borrowers who default on their mortgage obligations following property damage; and
  • consequential loss coverage, which includes coverage for business interruption, extra expense, additional living expenses, rent or rental value, and leasehold interests.

As this list indicates, purchasing earthquake insurance for a business can be significantly more complicated because it requires a comprehensive risk assessment of an insured’s operations to ensure that any possible gaps are covered. Additionally, the failure to consider coverages provided by other standard business insurance policies may result in unnecessary duplication of coverage.

For example, a standard commercial automobile policy would likely cover damage to a work vehicle that is caused by falling debris, even though an earthquake was the cause of the falling debris. Similarly, an employee injured while at work by a collapsing wall would be covered under the employer’s workers’ compensation insurance policy, even though the wall collapsed during an earthquake.

These examples illustrate the benefit of being familiar with the nature, scope, and applicability of various lines of insurance. To enjoy the benefits of such knowledge, insureds should seek the advice of a trusted insurance agent who has experience with the kinds of insurance being sought, and knowledge about the insured’s specific business and industry. In any event, given the seriousness of the risks posed by earthquakes, insureds must be thorough when evaluating and purchasing earthquake insurance.

According to the USGS, 2010 saw 21,545 earthquakes worldwide—8,493 of those were located in the United States. Unfortunately, earthquakes not only have the potential to be the most devastating of all natural disasters, but they are virtually impossible to predict. Cause for concern is only increased by the fact that most states face the risk of earthquakes, and that those at risk of experiencing an earthquake outnumber those who are not. For many, these facts were not fully understood until the Virginia quake in 2011 shook the ground in areas that some believed to be earthquake-free zones. Accordingly, when deciding the need for earthquake planning and preparation, more people are reciting the mantra that is often associated with natural disasters: It’s not if, but when.

If you would like to learn more about earthquake coverage, or if you have any questions regarding your insurance needs, please contact us.

To Tell the Truth: The Consequences of Lying on an Insurance Application

Completing an application for insurance can be time-consuming and tedious. Nevertheless, the application is important because an insurance company will use an applicant’s answers to determine whether to offer insurance and how much to charge. In making these determinations, insurance companies generally have the right to rely on an applicant’s answers without conducting their own investigation. However, insurance companies may be entitled to deny coverage to those who provide false or incorrect information on their application. Since a denial of coverage can be devastating for an insured, it is important to understand what is required of insureds when they are completing their insurance applications.

Pursuant to statute, information provided by an insured in an application for insurance is a representation rather than a warranty. For example, Florida’s statute states that, “any statement or description made by or on behalf of an insured…in an application for an insurance policy…, or in negotiations for a policy…, is a representation and is not a warranty.” Georgia’s statute similarly provides that “all statements and descriptions in any application for an insurance policy…shall be deemed to be representations and not warranties.”

Additional examples of similar statutes can be found in North Carolina’s Insurance Law (statements in application are not warranties) and Pennsylvania’s Insurance Company Law (statements in applications deemed representations, not warranties). Note that each state’s statutes should be reviewed for variations in wording, interpretation, and application.

The purpose of these provisions is to prevent an insurance company from claiming that any misstatement, regardless of significance, constitutes a breach of warranty that would entitle the insurance company to deny coverage. Rather, such statutes typically permit an insurance company to deny coverage only if the misrepresentation, omission, concealment of fact, or incorrect statement, is significant enough to warrant such a harsh result.

Consider Florida’s statute, which states that an insurance company can deny coverage under a policy only if:

  • the misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer; or
  • if the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith 1) would not have issued the policy or contract; 2) would not have issued it at the same premium rate; 3) would not have issued a policy or contract in as large an amount; or 4) would not have provided coverage with respect to the hazard resulting in the loss.

Judicial opinions interpreting this statute note that undisclosed information submitted in a policy application is generally material if the insurer would have altered the terms of the policy had the true facts been known, or if the true facts would have served as a basis for denying the policy application. If an insurer can establish materiality, then the insurance policy will be void ab initio, which means that the policy is rendered null and void from the date of inception as if the policy never had any legal validity. In such cases, there would be no coverage because the insurance company has an absolute defense to enforcement of the policy.

The manner in which an insurance company can establish the materiality of a misrepresentation, omission, concealment, or statement may vary depending on the particular facts. In one case involving the failure to list all residents in a home, a court referenced an insurance underwriter’s statement that “the unknown risk would have resulted in a higher premium.” In another case wherein the insured’s failure to disclose a prior bankruptcy was deemed material, underwriting standards were used to establish the insurance company’s policy of declining applicants who demonstrate a pattern of financial irresponsibility. Alternatively, a court ruled that since the matters relevant to the applicant’s omission were excluded under the policy anyway, the insurance company could not satisfy the materiality requirement. Given the flexibility of the statutory language, there are few hard and fast rules in this context.

It is important to note that under the Florida statute, an insurance company does not need to establish that the applicant’s misrepresentation, omission, concealment, or statement was done intentionally or even with knowledge of correctness or untruth. Rather, the insurance company need only establish materiality. This means that even those making innocent mistakes can be denied coverage under the statute.

If an insurance company is able to establish materiality, then the policy will be considered null and void regardless of whether the insurance company adhered to Florida’s claims administration statute or complied with Florida’s statutory notice of cancellation procedures. Additionally, since Florida law presumes that a person who signs a policy application does so with the intent to authenticate it, an applicant cannot argue that he or she did not read the application in its entirety before signing it.

Upon discovering that an application for insurance was incomplete or inaccurate, an insurance company will likely investigate the application’s deficiencies to determine whether they are sufficiently material to cancel the policy. This possibility of being denied insurance coverage should be incentive enough for insureds to take the time and make the effort to complete an application for insurance truthfully and accurately.

If you would like more information about applying for or obtaining insurance, or if you would like to discuss your specific insurance needs, please, contact us.

Florida Public Adjusters are Being Adjusted Legislatively

Those who have suffered a property loss often describe the experience of dealing with their insurance company as traumatic and confusing. This is particularly true of the claims adjustment process, wherein the insurance company investigates the claim to determine how much money the insured is owed. Consequently, many insureds use a public adjuster to assist them through the process of getting their insurance claims resolved.

While a company adjuster is employed by the insurance company, and an independent adjuster is contracted by the insurance company, a public adjuster works directly for the insured or other claimants for the purpose of negotiating and reaching a positive settlement with an insurance company. In many instances, public adjusters are successful in their efforts.

According to a January 2010 report prepared by the Office of Program Policy Analysis & Government Accountability (OPPAGA), which is the Florida Legislature’s research arm, policyholders represented by public adjusters typically received higher settlements than those without public adjusters.

For example, the typical payment to a policyholder represented by a public adjuster for property damage caused during the 2004 Florida hurricane season was $22,266. In contrast, typical payments for policyholders who did not use a public adjuster were $18,659. For claims related to the 2005 hurricanes, the difference in payments was larger–claims processed with the assistance of a public adjuster resulted in payments that were 747% higher. However, as noted in the report, since policyholders pay public adjusters a percentage of their settlement, the net settlement is lower than these amounts.

Based on these statistics, many insureds and claimants believe public adjusters provide an invaluable service. Insurance companies, however, tend to see things a bit differently. Indeed, the OPPAGA report describes the conflicting viewpoints between insurance companies and public adjusters. According to the report, public adjusters believe they are the only advocates exclusively representing policyholders, whereas insurance companies believe public adjusters insulate policyholders and create distrust between the insurance company and the policyholder.

In the context of claims settlement practices, public adjusters believe that since insurance companies are loyal to their shareholders, they are not motivated to provide full compensation to their insureds. Insurance companies, on the other hand, believe that public adjusters make it difficult for insureds to complete all repairs to their property because a portion of the settlement amount must be paid to the public adjuster. These are but a few of the conflicting points of view between insurance companies and public adjusters.

During the 2011 Florida legislative session, the insurance industry lobbied for changes to the laws governing the manner in which public adjusters do business. As a result, several changes have been made to Florida’s Insurance Adjusters Law, including the following:

Compensation Limits (F.S. §626.854–Effective June 1, 2011)

If a public adjuster reopens a claim or files a supplemental claim seeking additional payment for a claim that was previously paid or settled, then the public adjuster’s compensation for any such reopened or supplemental claim may not exceed twenty percent (20%) of the reopened or supplemental claim payment.

If a claim is based on an event that causes the Governor to declare a state of emergency, then a public adjuster’s compensation cannot exceed ten percent (10%) of the amount of paid by the insurance company for such a claim. However, under the amended law, after one year, the ten percent limit on the public adjuster’s compensation is increased to twenty percent.

Advertising Limitations (F.S. §626.854(8)(a)–Effective January 1, 2012)

Florida’s Insurance Adjusters Law was amended to add various restrictions on the manner in which public adjusters, or anyone on their behalf, circulate or disseminate any advertisement, announcement, or statement. Section 626.854(8)(a) provides that the following statements, made in any public adjuster’s advertisement or solicitation, are considered deceptive or misleading:

  • A statement or representation that invites an insured policyholder to submit a claim when the policyholder does not have covered damage to insured property;
  • A statement or representation that invites an insured policyholder to submit a claim by offering monetary or other valuable inducements;
  • A statement or representation that invites an insured policyholder to submit a claim by stating that there is “no risk” to the policyholder by submitting such claim; and
  • A statement or representation, or use of a logo or shield, that implies or could mistakenly be construed to imply that the solicitation was issued or distributed by a governmental agency or is sanctioned or endorsed by a governmental agency.

Advertising Limitations (F.S. §626.854(8)(b)–Effective January 1, 2012)

The amended law provides that public adjusters must include a disclaimer on all “written advertisements,” which consists of only newspapers, magazines, flyers, and bulk mailers. The following disclaimer, which is not required to be printed on standard size business cards, must be added in bold print and capital letters in typeface no smaller than the typeface of the body of the text to all written advertisements by a public adjuster:

“THIS IS A SOLICITATION FOR BUSINESS. IF YOU HAVE HAD A CLAIM FOR AN INSURED PROPERTY LOSS OR DAMAGE AND YOU ARE SATISFIED WITH THE PAYMENT BY YOUR INSURER, YOU MAY DISREGARD THIS ADVERTISEMENT.”

Scheduling Limitations (F.S. §626.854(14)–Effective January 1, 2012)

Under the amended law, a representative of the insurance company, including a company adjuster, independent adjuster, attorney, or investigator, that needs access to an insured or claimant or to the insured property that is the subject of a claim must provide at least 48 hours’ notice to the insured or claimant, public adjuster, or legal representative before scheduling a meeting with the claimant or an onsite inspection of the insured property. The insured or claimant may deny access to the property if the notice has not been provided. The insured or claimant may also waive the 48-hour notice.

General Standards for Public Adjusters (F.S. §626.854(15)–Effective January 1, 2012)

The amended law includes various provisions requiring that public adjuster provide notice to the insurer. The law generally provides that a public adjuster must ensure that prompt notice of property loss is submitted to the insurer, that the public adjuster’s contract is provided to the insurer, that the property is available for inspection, and that the insurer is given an opportunity to interview the insured directly about the loss and claim. The law includes a catchall provision stating that the insurer must be allowed to obtain necessary information to investigate and respond to the claim.

Additionally, the insurer may not exclude the public adjuster from its in-person meetings with the insured, and the insurer shall meet or communicate with the public adjuster in an effort to reach an agreement as to the scope of the covered loss under the insurance policy. A public adjuster may not restrict or prevent an insurer’s representative from having reasonable access at reasonable times to an insured or claimant or to the insured property that is the subject of a claim.

A public adjuster may not act or fail to reasonably act in any manner that obstructs or prevents an insurer or insurer’s adjuster from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage. However, the public adjuster representing the insured may be present for the insurer’s inspection, but if the unavailability of the public adjuster otherwise delays the insurer’s timely inspection of the property, the public adjuster or the insured must allow the insurer to have access to the property without the participation or presence of the public adjuster or insured in order to facilitate the insurer’s prompt inspection of the loss or damage.

Licensed Contractor Limitations (F.S. §626.854(16)–Effective January 1, 2012)

Under the new law, a licensed contractor or subcontractor, may not adjust a claim on behalf of an insured unless licensed and compliant as a public adjuster. However, the contractor may discuss or explain a bid for construction or repair of covered property with the residential property owner who has suffered a loss or damage covered by a property insurance policy, or the insurer of such property, if the contractor is doing so for the usual and customary fees applicable to the work to be performed as stated in the contract between the contractor and the insured.

Contract Requirements (F.S. §626.8796(2)–Effective January 1, 2012)

The amended law creates section 626.8796(2), which deals with required contractual provisions. Under the new law, a public adjuster contract relating to a property and casualty claim must contain: the full name, permanent business address, and license number of the public adjuster; the full name of the public adjusting firm; and the insured’s full name and street address, together with a brief description of the loss.

Additionally, the contract must state the percentage of compensation for the public adjuster’s services; the type of claim, including an emergency claim, nonemergency claim, or supplemental claim; the signatures of the public adjuster and all named insureds; and the signature date. If all of the named insureds signatures are not available, the public adjuster must submit an affidavit signed by the available named insureds attesting that they have authority to enter into the contract and settle all claim issues on behalf of the named insureds.

This new statutory section provides that an unaltered copy of the executed contract must be remitted to the insurer within 30 days after execution.

Finally, as of publication of this article, there is a development regarding a current provision of Florida’s Insurance Adjusters Law. Under section 626.854(6), a public adjuster may not directly or indirectly initiate contact or engage in face-to-face or telephonic solicitation, or enter into a contract with any insured or claimant under an insurance policy until at least 48 hours after the occurrence of an event that may be the subject of a claim under the insurance policy, unless contact is initiated by the insured or claimant.

On December 29, 2010, a Florida appellate court held that the 48-hour limitation constitutes an unconstitutional prohibition against the free speech rights of public adjusters. The case is currently pending before the Florida Supreme Court. Depending on how the Court rules in this case, the 48-hour limitation may be removed from the current law.

If you would like more information about dealing with a claim, please, contact us.

Clearing up the Confusion of Coinsurance:How to Avoid the Penalty

It is not uncommon for insureds, even sophisticated ones, to be confused about the precise meaning of the coinsurance clause found in their property insurance policies. In fact, many insureds fail to appreciate the effects of the coinsurance clause until they are endured after a loss. While experience may be the best teacher, it is rarely the cheapest, particularly when the lesson involves the coinsurance clause a/k/a the coinsurance penalty.

Simply stated, a coinsurance clause provides that the insurance company and the insured will each pay a percentage of a claim if the insured fails to insure the property for the limits required by the insurer within their coinsurance clause.

So, let’s consider a hypothetical situation involving two identical warehouses worth $100,000 at the time of the loss. Bill purchases a property insurance policy with coverage equal to the full value of the property ($100,000). Ted purchases an identical policy, but with a limit equal to half the value. A severe thunderstorm causes identical $30,000 losses to both properties. Will the insurance company pay Bill and Ted the same amount for their claims, even though Ted paid significantly less in premiums and insured only half of the value of the property? The answer is ‘no.’

A typical coinsurance clause will establish the minimum amount of insurance that is required to avoid a reduction in the amount the insurer will pay for a loss. This amount is generally expressed as a fixed percentage of the value of the property at the time of the loss, frequently between 80% and 100%. If the property is not insured for at least the required amount, then the insurance company may shift part of the responsibility for the loss to the insured.

A coinsurance clause will also explain how to determine whether a coinsurance penalty will apply, and, if so, how much it will be. This formula considers the amount of insurance actually carried by the insured and divides this amount by the amount of insurance that should have been carried. The resulting percentage is multiplied by the value of the loss.

To better understand the calculation, it is helpful to demonstrate the process by returning to the Bill and Ted hypothetical, only now, an 80% coinsurance requirement has been added.

Ted (Underinsured): Property Value at time of the Loss = $100,000; Limit of Insurance = $50,000; Coinsurance = 80%; Loss = $30,000; Deductible = $500.

  1. Actual Property Value x Coinsurance % $100,000 x .80 = $80,000 2. Policy Limit / # from Step 1 $50,000 / $80,000 = .625 3. Loss x # from Step 2 $30,000 x .625 = $18,750 4. # from Step 3 minus deductible $18,750 – $500 = $18,250

In Ted’s case, the insurance company would pay the lesser of the amount determined in Step 4 ($18,250) or the limit of insurance ($50,000). So, the insurance company will pay Ted $18,250 and Ted will have to absorb a coinsurance “penalty” for the remaining amount ($11,750).

Bill (Insured to Value): Property Value at time of the Loss = $100,000; Limit of Insurance = $100,000; Coinsurance = 80%; Loss = $30,000; Deductible = $500.

  1. Actual Property Value x Coinsurance % $100,000 x .80 = $80,000 2. Policy Limit / # from Step 1 $100,000 / $80,000 = 1.25 STOP! A coinsurance penalty does not apply when the result of step 2 is 1.00 or higher.

Since Bill is not subject to the coinsurance penalty, the insurance company would pay the full amount of the loss (up to the limit of insurance), minus the deductible. So, the insurance company will pay Bill $29,500 for his $30,000 loss.

These illustrations highlight two items worth noting. First, the actual impact of the coinsurance penalty, in terms of dollars paid on a partial claim, can be huge. If a policy’s coinsurance provision is ignored, the results can be devastating to a cash-strapped organization dealing with a partial loss, regardless of whether the coinsurance clause was ignored deliberately or negligently.

Second, Bill’s example highlights the middle ground between insuring to 100% of value and insuring to the minimum percentage required by a coinsurance clause, which is 80% in Bill’s case. Although Bill could have saved on premiums by only insuring the property for the required 80%, he would have been underinsured in the event of a total loss. Bill’s approach is the most risk averse, and the most expensive. Those insureds capable of withstanding a greater risk in the event of a total loss may find some wiggle room when determining the amount of insurance to purchase. Given the increased risk, it is best to go over this option only with an experienced insurance agent.

It is important to remember that the value of the property is established at the time of the loss. If property values increase, insureds must make sure their coverage limits are increased as necessary to maintain the appropriate level of insurance required by the coinsurance clause. Alternatively, there are options that do not require an insured to constantly increase limits to keep pace with increases in property values, such as negotiating an agreed value provision in a policy.

Although navigating the complexities of coinsurance is best done with the assistance of an experienced insurance agent, insureds can benefit from having a basic understanding of their own. For example, understanding coinsurance permits an insured to better judge the competency of a current or prospective insurance agent. An agent who is unable to correctly explain the concept, theoretically and practically, should be dismissed as an option because the consequences of getting coinsurance wrong are simply too great.

Second, understanding coinsurance can protect an insured from being taken advantage of by unscrupulous agents. Since coinsurance can significantly affect actual amounts paid by an insurance company in the event of a partial loss, changing limits and coinsurance percentages can dramatically affect the premium. By tweaking these figures, an agent can submit a proposal for insurance with significantly reduced premiums in order to win the business. Those who understand the concept of coinsurance can avoid falling for this tactic by identifying how the reduction in premium was achieved, and understanding that the true cost of the savings is the assumption of a potentially devastating risk.

Coinsurance involves far too many details, variations, and nuances to be fully discussed in a single article. As is often the case with insurance, just because an option is good for one does not necessarily mean that it will be good for another. An experienced insurance agent will not only help an insured avoid the potentially devastating pitfalls of coinsurance, but will also understand how to use coinsurance as a tool to obtain coverage that is economical and consistent with an insured’s specific risk tolerance.

If you would like more information about coinsurance, or if you would like us to take a look at your insurance coverage’s, please contact us.

Do I Need Rental Car Insurance?

Even after learning that the mid-sized car he reserved was unavailable, Jerry Seinfeld did not hesitate when asked whether he would like to purchase insurance for the remaining rental car. “Yeah, you better give me the insurance because I’m gonna beat the hell out of this car.”

Though this dialogue is fictional, the situation is not. Unfortunately, many of those asked about rental car insurance simply do not know how to respond.

According to the National Association of Insurance Commissioners, 42% of those surveyed were either thoroughly confused or had only a rough idea about rental insurance. Thirty-four percent of those surveyed bought a rental car company’s insurance just to make sure they were covered. Thus, a significant number of people are making important decisions without knowing precisely what they are buying or what they are refusing. Needless to say, uninformed decisions involving insurance should be avoided.

Rental car companies typically present their customers with multiple options of additional coverage, including liability insurance, accident insurance, personal effects coverage, and collision damage waiver (CDW). The most common option is the CDW, which is also known as loss damage waiver. While not technically insurance at all, the CDW allows car renters to avoid any financial responsibility if a rental car is stolen or damaged. The CDW may also cover any loss of use fees, which are designed to cover the amount that rental car companies charge customers for every day a damaged or stolen rental car is out of service.

Determining whether any of these options should be purchased from the rental car company depends on each driver’s particular situation. If the correct decision is made, two things will happen: 1) the driver will not have any gaps in coverage, and 2) the driver will not have duplicate coverage. This is accomplished by determining whether any of the benefits offered by a rental car company’s products can be found elsewhere.

  • The most common sources of concurrent coverage for liabilities associated with a rental car are:Personal Automobile Insurance Policy. If a driver is already covered under a comprehensive and collision auto insurance policy, damage to the rental car may very well be covered. Any coverage would be subject to applicable limits, deductibles, and exclusions under the policy. The scope of coverage and any limitations should be confirmed with an insurance agent.
  • Personal Umbrella Liability Policy. A personal umbrella may provide coverage in the event of a loss involving a rental car. Any coverage would be subject to applicable limits, deductibles, and exclusions under the policy. For example, the care, custody, and control exclusion must have an exception for damages to non-owned vehicles that were not required by contract to be covered by insurance. The scope of coverage and any limitations should be confirmed with an insurance agent.
  • Credit Card. If used to pay for the rental car, a driver’s credit card may provide free rental coverage and other associated benefits. The credit card agreement should be reviewed carefully to clarify exactly what may or may not be covered, as well as any conditions to coverage.

In many instances, one or more of these resources may cover most or all of the obligations a driver assumes when he or she signs a rental car agreement. In such cases, rental car insurance, at least in part, would be redundant. Since rental car insurance is rarely free, and is often expensive, there is a strong financial incentive to avoid redundant insurance coverage.

The most important part of this process is confirming the absence of any gaps in coverage. For example, if a personal automobile insurance policy does not provide international coverage, then that policy cannot be relied on for international travel. Also, if a car is being rented for business use, then a personal umbrella may not provide coverage for an occurrence involving the rental car. Identifying coverage gaps requires a good understanding of the insurance policy or credit card agreement relied upon to provide coverage, and the scope of use of the rental vehicle.

Given the consequences of incorrectly expecting coverage under an existing insurance policy, it may be helpful to consult with an insurance professional before deciding whether to purchase or forego rental car insurance. The same recommendation also applies to credit card agreements and the protections afforded to those using the credit card to rent a car. Since rental car insurance products generate revenue for rental car companies, the rental counter may not be the best source of information or guidance.

Avoiding both gaps in coverage and duplicate coverage for potential rental car liability requires effort and inquiry on the part of a driver. However, since the cost of failing to prevent either or both of these situations could be significant, the effort is often justified.

If you have any questions, or if you would like an insurance quote, please contact us.