The Anchor THE MAGAZINE OF THE INDEPENDENT INSURANCE AGENTS OF RHODE ISLAND
Second Quarter 2013
IN THIS ISSUE From the President..................... 5 Agency Acquisitions................. 12 Convention Wrap Up................ 16
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The quarterly magazine of the
table of contents
Independent Insurance Agents of Rhode Island
2400 Post Rd., Warwick, RI 02886 401-732-2400, Fax: 401-732-1708 Officers of the IIARI President President Elect Vice President State National Director Immediate Past President
Howard Thorp, AAI, CIC Greg Troy, CIC, CLU, AAI Robert T. Hartnett Robert Slocum, CPCU, CIC Doug Mayhew, CIC
2013 Partners Program Page 10
10 2013 Partners Program
IIARI Convention Wrap Up Page 16
30 Big “I” Flood
Case Law Note Page 22
22 EMC Insurance Companies
23 Big “I” Advantage 32 Clean Care of New England 9 Enviro-Clean, Inc. 4 IIARI Store
Board of Directors District Vice Presidents Central East Bay Southern Northern
Andrew Palazzo Richard B. Paquin Tom Regan, AAI David White, AAI
District Vice Presidents, At Large John Kaull, AAI David Woodmansee, CIC District Representatives Central East Bay Northern Southern
Garry Mansfield, CIC
Edward F. Bishop, CIC Mark Rotondo Colette McKeon, CIC Ken Thompson, Jr. Marc Nadeau, CPIA Denise Smith Kimberly Raymond, CIC Stan Tabak
STAFF State Account Manager Marcia L. Berthiaume, AAI, ACSR E&O Administrator & Mbr Coordinator SVP, State Account Executive
Sean R. Donaghey, CPCU
Education & Events Planner
Kathryn E. Griffiths
Executive Vice President AVP, Director of Education
Mark A. Male Jean E. Nagle, AAI, ACSR, AIS
Finance & HR Manager Membership & Administration
Maureen E. Sears Sarah Van Grootheest
features & articles
13 Partridge Snow & Hahn, LLP 21 Service Insurance Company 27 Servpro of Providence
From the President Page 5
2 Smoke Clean of New England
Executive Vice President Perspective Page 8
15 TC Reimbursement Program 15 Wells Fargo
Young Agents Page 11 Legal Briefs Page 12 HR Corner Page 20 E&O Corner Page 24 Marketing Thought Page 26 WC Update Page 28
The Anchor is the magazine of the Independent Insurance Agents of Rhode Island (IIARI). Statement of fact and opinion is made based on the responsibility of the authors alone and does not imply an opinion on the part of IIARI, it’s officers, directors or members. Subscription rate for members is $15, which is included in dues. Subscription rates for nonmembers is $75 per year (single copies $10). Reprint requests should be referred to IIARI. Copyright©2012, Independent Insurance Agents of Rhode Island.
Cover Photo: Dutch Island Lighthouse, Narragansett Bay.
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from the president Engaging Members & Enhancing Our Image It’s hard to believe that my tenure as your President is half over. Since being inducted as your President in November we’ve been busy engaging our membership and enhancing our image. If those phrases sound familiar, that’s because they’re our strategic goals. Everything we do comes down to these two questions. Are we engaging our members? Does what we do somehow enhance our image? As I hope you will see, we are, and it does. As a board, we identified six committees that we are currently focusing our attention. Each of these committees is either chaired by a current board member or has as at least one current board member involved. Each of our board meetings includes a time for committee reports, at which time a board representative from the committee is required to give the board a synopsis of their activities. I thought that I would give you look at some of our committees and the work that they do for each of us. Keep in mind that we accomplish what we do largely through the efforts of a group of truly dedicated volunteers. The Consumer & Agent Resource Education Committee (C.A.R.E.) Chaired by Margaret Longolucco, this committee was originally formed to identify ways to positively impact the fallout of coastal issues to the benefit of member agents and their customers. However, they have recently taken the committee to another level. Instead of solely focusing on coastal concerns they have decided to use the material they have worked on for the past sev-
eral years and combine them with new information pertaining to insurance in general and then add it to a website to be dedicated as a resource members can send clients to without fear of being poached by competitors. This resource for agents and clients will be launched later this year so look for the announcement!
Howard Thorp, AAI, CIC IIARI President
Communications Chaired by Brenda Loiselle-DuClos, this committee manages our annual Trusted Choice campaign. They also oversee all other areas of communications and public relations to promote our image to various audiences including members, consumers, companies, legislators and regulators. This year, our Trusted Choice budget has increased to $247,500, up from $208,750 last year. This is one of our biggest budgets ever! We received a grant for this from IIABA for $85,000, up from $75,000 last year. We now have six carriers supporting our campaign who each contributed $5,000 – that’s one more contributing carrier than last year. We also now have 36 agencies contributing to our Trusted Choice campaign. Last year we had 28 participating members. The communications committee was also active at our recent convention in Newport. They staffed a booth where they aired Trusted Choice TV ads to give agents who haven’t participated in the past a chance to see our 2013 ads. They also arranged to have any interested agents at the convention film their own 30 second TV ad for free to see how easy it is to do. These ads were
5 Second Quarter, 2013
then given to those agents so that they could use them on their own websites, social media, etc. Over a dozen agencies took advantage of the opportunity. Your communications committee is also planning a new “scaled down” marketing campaign to be rolled out in the fall when our regular Trusted Choice campaign wraps up. This campaign will give all current participating agents an opportunity to extend their advertising for an extra 2 months and will also give other agents, who are not currently participating, a chance to get involved. The fall campaign will require a flat $500 fee per agency to participate and will include only cable programming for 6-8 weeks targeted for November and December. Agents will be allowed to use the same TV ad recorded in the spring or take advantage of creating a new customized TV ad. In order to keep cost down, all new TV ads will be filmed at IIARI on a specific day in front of a green screen. This will allow agents who have not been able to participate in the larger campaign due to cost, the ability to create and run a customized TV ad while minimizing productions costs. Convention Co-Chaired by Matthew Clarke and Christina Ventura, the committee is responsible for planning, organizing, implementing and then evaluating IIARI’s Annual Convention. Despite the postponement from Super Storm Sandy in October 2012, the May 2013 IIARI Convention was a huge success! Our exhibitors all had positive feedback. They liked the setup of the event remarking on better traffic flow and the attention that was paid to them. The CE sessions were well attended, as was the opening night reception at the International Tennis Hall of Fame and Canfield House. RI General Treasurer
Gina Raimondo’s presented Thursday morning which was an interesting and insightful presentation on the financial health of RI. John Chapin’s afternoon sales session was informative and motivating as well as entertaining. All those who I spoke to that attended seemed to agree. The convention continues to be a great value. Government Affairs Chaired by Ernie Shaghalian, our Government affairs committee works with our lobbyist, Terry Martiesian and the RI Agents Council. They review all insurance related legislation and promote legislation that is in our best interest and oppose legislation that is detrimental to IIARI members and the insurance consumer. When necessary, they testify at the State House before various legislative committees and subcommittees. Ernie has agreed to attend our upcoming board meeting to give us an overview of current legislation, both pro and con. We have to be proactive with respect to legislation that affects us. IIARI PAC Co-Chaired by Ed Bishop & Colette McKeon, our Political Action Committee (PAC) supports state candidates for public office who are sympathetic to our interests and views. When you receive your solicitation for an annual PAC contribution, please take a moment to contribute. We need as many friends in the legislature as we can get. It’s our livelihood! Our InsurPac fundraising goal for 2013 is $6,950. Currently through the end of May we have raised $5,230. This amount has been contributed by only 29 agents. Our InsurPac fundraising exceeds the efforts of 22 other states - not bad for the smallest state in the union! Our
6 The Anchor Second Quarter, 2013
IIARI PAC goal is $8,000 and we currently stand at $2,800 so we still have some distance to cover before the end of the calendar year. Young Agents Chaired by Kelly Townsend, the Young Agents committee encourages young agents, and those who are new to our industry, to become engaged and aware of all aspects of the insurance industry. These are the future leaders of the insurance industry! We are fostering these talented individuals by encouraging education and providing opportunities for growth in the industry. Kelly Townsend recently accompanied the IIARI delegation to Washington DC for the Annual Legislative Conference. We met with Sen. Jack Reed, Sen. Sheldon Whitehouse, Congressman James Langevin, and Congressman David Cicilline. Kelly, as the chair of the Young Agents committee, got a first hand look at our lobbying efforts on Capitol Hill. Young Agents are involved in education at our association. They are organizing and sponsoring a new flexible CPIA (Certified Professional Insurance Agent) designation program. CPIA focuses on developing the skills needed to design and present a complete and innovative protection program for prospective clients, and teaches agents
how to position themselves, implement and sustain success. The typical CPIA course is held over three consecutive days. The new flex program is set to begin in August and is designed to more easily accommodate our young agentâ€™s less flexible schedules. This new program is a 3 part program which they will offer over an 8 week period with make up days available in late October. Our Young Agents are also planning a networking and social event at IIARI on Tuesday, June 25th. This will be an opportunity for our Young Agents to meet the members of the IIARI board, committee representatives, and learn more about the workings of our association. I hope that you will agree that you are being well served by your association. We are concentrating on our strategic goals. This is good for all of us. Your IIARI staff, in conjunction with your colleagues, who volunteer their time, have worked tirelessly to bring this association to where it is today. Our volunteers are the lifeblood of IIARI. Without their dedication, there is only so much that our paid staff could accomplish. To those of you who have given of your time, I say THANK YOU! To those of you who have not yet volunteered, I ask that you please consider it. Your association cannot run without you!
7 Second Quarter, 2013
executive vice president perspective Exceeding Expectations
Mark A. Male IIARI Executive Vice President
It never ceases to amaze me how Associations work. You try to manage those things in your control and expect the unexpected. Contingency planning is as much a part of your daily routine as getting a cup of coffee. Just when you think you have a handle on how and what defines success something completely unexpected happens. If you adopt and embrace a view that there is limited control on how plans play out, then you’re probably in a better position to accept whatever comes your way. As I reflect on the past fiscal year (which ends August 31), I am surprised by many things – some because they met expectations and others that exceeded. Each year the IIARI Board approves a budget that tends to be income conservative and expense aggressive in hopes of delivering a balanced budget. Being a not-for-profit organization does not mean we should aim to lose money each year, rather maintain a balanced budget that will deliver breakeven results, or in a good year, deliver a small profit. While the membership numbers in Rhode Island reflect the trending of mergers and acquisitions – it is offset by startup agencies by agents who are coming from the dark side of insurance distribution and into the light of ownership of expirations. While there remains a downward trend in membership overall we have never experienced a precipitous one year drop, ever. In fact, over the last five years we have been fortunate to see approximately a 10% membership decline in all the years combined. Incidentally, I’m told by my counterparts in other states, we
are doing well. Let’s call this “exceeding expectations.” Let’s look at education, the cornerstone for many Associations. In creating this year’s budget the Board looked at last year’s performance and projected what we might expect this year to create a budget target. As a matter of practice (and solid common sense), we typically select a target based on past performance and expected trends for the coming year. A wild card for IIARI this year was service provided to external customers, something we did not anticipate. This is an important development as it means a revenue source that is both friendly/supportive to independent agents and helps lift the organization financially without putting additional burden on our rank and file members. The external customer finds value in the relationship and helps IIARI in its mission. This is another “exceeding expectations” scenario that benefits us all. The rescheduled convention prompted anxiety and concern by many given the distance between the original and the actual rescheduled date. Despite the change – over six months – we not only met but exceeded expectations for attendance and participation. We actually added additional exhibitors and secured new sponsors as well. The reception event at the International Tennis Hall of Fame was incredibly successful, too. Having been affiliated with IIABA for over 28 years this had to be one of the first times that we received so many compliments on an event from start to finish. This was yet another “exceeding expectations” result.
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From a fiscal standpoint, dues have remained static for the past 6 years and while the budget preparation process begins in July, it is unlikely we will need to raise dues yet again! We are able to balance the budget by conducting successful meetings, educational seminars and maintaining a relatively stable membership. Not dissimilar to most organizations, it is the sum of all the parts that makes the machinery work. From success in education, convention/meetings and membership, to the advocacy, agency management and business assistance, IIARI contin-
ues to move ahead. We constantly look for ways to make you more successful through increased revenue, reduced expenses, enhancing customer relationships and access to critical information that ultimately differentiates us from other forms of insurance distribution. In conclusion, I feel like we are meeting expectations thanks to some great success in other key areas. As always, the officers, Board and staff stand prepared to respond to your agency and professional needs and it is our pleasure to continue the Association legacy of over 112 years.
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w w w. e n v i r o c l e a n i n c . n e t 9 Second Quarter, 2013
THANKS IIARI 2013 PARTNERS PROGRAM COMPANIES Diamond Sponsor
Silver Sponsor Bronze Sponsors
Quincy Mutual Group
American Commerce Insurance Co. EMC Insurance Companies Phenix Mutual Fire Insurance Co. The Andover Companies
The Independent Insurance Agents of Rhode Island proudly introduces the 2013 Partners Program. The 2013 Partners Program is a mechanism to allow companies to demonstrate their support of the American Agency System and IIARI. Be sure to thank your companies for their unparalleled support of IIARI and all independent insurance agents. Look for all of our sponsors throughout the coming year as we acknowledge their commitment at all IIARI events and functions.
Foun•da•tion noun; 1. the basis or groundwork of anything. There are several different definitions available for the word foundation, but it all starts around the base or groundwork of something. It could be a home, the morals we hold to in our personal lives and as insurance agents or the ground work that the Independent Insurance Agents Association has laid out for us. Individually and as a group we work to build on that foundation to grow our lives, careers, businesses and industry. Just a few weeks ago I was able to see our association at its best, working together with other state associations for the collective good of the cause, the insurance industry and independent agency system. The Big “I” Legislative Conference in Washington DC was held April 17-19. I was a first time attendee and it was an excellent experience that I would highly recommend to everyone. It’s also a prime example of independent agents building upon their foundation to reach goals. Delegations from each state met with their Senators and Representatives to discuss topics important to the insurance industry and the independent agency system. Events like this would be impossible if the right foundations were not in place both for the Independent Insurance Agents and Brokers of America and each individual state. The re-authorization of the National Flood Insurance Program for a new 5 year term through the Biggert Waters Flood Insurance Reform and Modernization Act of 2012 is proof that it works. Seeing these agents in action, reinvigorates and encourages you to carry that back, identify an area that could be a new or renewed strength and look at it from a new angle.
This year we are focusing on strengthening the foundation and building up the Rhode Island Young Agents. Knowing that the proper foundation is imperative, we began by identifying and contacting a dynamic group of Young Agents from different areas and backgrounds to form a strong committee. What we have as a result is a great group of individuals full of ideas and energy. Our next step was reaching out to those around us for their input - the Independent Insurance Agents of Rhode Island (IIARI) Board of Directors, and the Young Agents themselves. Young Agents were contacted in the form of a survey that was easily completed online in just a few moments. Information collected from the survey allowed us to identify those agents that wanted to be included in the Young Agents program, gather updated contact information and preferences, and identify those areas which were most important to them. The results were gathered and will be shared with Young Agents, Agency Principals and our Company partners. Future surveys are planned to follow up both with Young Agents and Agency Principals. As we look towards planning our kick off events we know that success will be driven by consistency, communication, and participation. We want to focus on strengthening the Young Agents by way of education, networking and mentoring. We encourage your participation and input as we strive to make the Young Agents of Rhode Island a staple for those new to the industry and a positive force for the Independent Insurance Agents of Rhode Island.
Kelly Townsend Young Agents Chair
11 Second Quarter, 2013
legal briefs Insurance Agency Acquisitions
Christopher C. Cassara, Esq. Partner Partridge Snow & Hahn, LLP
With the continuing trend towards agency consolidations, many opportunities exist to buy and sell insurance agencies in the current marketplace. However, there are several legal and business issues that should be considered in evaluating these opportunities from both a seller’s and buyer’s standpoint. For a seller, it begins by ensuring that any potential buyer signs an enforceable nondisclosure agreement before turning over any financial or business information relating to the seller’s agency or permitting the interested party to commence due diligence on the agency. This will protect the seller’s book of business and other proprietary information if a sale does not occur for whatever reason. The next important determination between a seller and buyer is whether the sale involves a sale of assets of the agency, or stock ownership of the agency, which includes all assets and all liabilities. An asset sale consists of a sale of the tangible and intangible assets of the agency. Tangible assets include such things as office equipment, furniture, supplies and computers. Intangible assets include the agency’s client list, accounts, expirations, goodwill, phone and fax numbers, websites, company and trade names, and other intellectual property. Assets might also include such things as rights under certain business contracts (for instance, carrier or producer contracts, or software licenses), permits, pre-paid expenses or insurance, and tax credits. A list and full understanding of what if any liabilities are being assumed as part
of the sale, such as lease obligations or accrued employee benefits, must be clearly defined between the parties. Unlike the stock sale, it is typical in an asset transaction for a buyer to not assume any liabilities of the seller agency. Therefore, in an asset sale, it is critical for the buyer, through due diligence and appropriate representations and warranties in the purchase agreement, to ensure that it is purchasing the agency assets free and clear of all liens and encumbrances, such as seller’s bank debt or tax liens. In a stock purchase transaction, by acquiring the stock ownership of the selling entity, the buyer acquires not only all of the assets of the agency but also assumes all of the liabilities of the selling agency. This would include, among other liabilities, any tax liabilities, bank and vendor debt, employee claims, as well as potential errors and omissions claims incurred by the selling agency prior to the sale, all of which would become the buyer’s obligations. As a result of these increased risks to a buyer in a stock sale as compared to an asset sale, appropriate indemnification provisions should be negotiated as part of the purchase agreement to protect the buyer from potential future liability claims for presale events, whether known, unknown or contingent at the time of the sale. Tax considerations will also play an important role in structuring a stock sale (as well as an asset sale) and both seller and buyer should consult with their tax advisors early in the process. One often overlooked part of the
The Anchor 12 Second Quarter, 2013
sale process is to review all current carrier contracts to determine the owner of the expirations or book of business, whether held by the individual agents, the agency or the carrier. You will obviously want to ensure that no employee producers are listed on the carrier contracts in such a manner that they could assert ownership rights to a particular line of business. A buyer should verify that the seller or agency is the agent of record with each carrier and has the right to transfer the expirations and book of business. In addition, some carriers may require prior written notice of the sale or transfer of an agency or ownership. If the buyer is not an approved agent it will need to complete an application process with the carrier in advance of the sale. A buyer must also determine which of seller’s producers and other employees it will retain post-sale. Key producers are vital to the acquisition and must come along as part of the sale. The
buyer should ensure that the producers and employees of seller have signed confidentiality, non-solicitation and non-piracy agreements in place for the benefit of the buyer post-closing, as well as employment agreements for those key producers who will be employed by buyer after the sale. A buyer will also want to consider restrictive covenants for all owners and principals of the seller agency that are reasonable in time, scope and geographic location for a period of time after the closing. Many times a seller will remain with the buyer agency as an employee or independent consultant post-sale. This arrangement should be set forth in a separate agreement signed at closing containing the material terms of the engagement. As the payment of commissions and accounting for returned commissions occurs on a continual rolling basis, it will also be necessary to include clear terms in the purchase agreement as to the allocation
Insurance law is: more about creating versus resolving. A good insurance lawyer knows how to resolve disputes and protect your interests. A great one also sees the law as an opportunity to create value and build your business. With Jenn Cervenka’s knowledge and skills on your side, you’ll be free to focus on the future — confident that you’re moving forward within the boundaries of the law.
Jennifer Cervenka Insurance, Chair
CLOSER TO THE ISSUES www.psh.com • 401-861-8200
13 Second Quarter, 2013
and responsibility for commissions due or payable, returned commissions, and firm dates to settle and reconcile accounts after the closing. Purchase price is obviously a key component of any agency sale. Historically, an agencyâ€™s value or worth is one to two times gross revenues (or gross commissions). That is a substantial range in value. Consider for instance, the difference in valuation between one and two times revenue for a $1 million agency ($1 million vs. $2 million in valuation). Further, this general rule of thumb does not take into account several other important factors that should be considered in an agency valuation, such as whether only a few accounts comprise a large percentage of a sellerâ€™s book of business, whether most of the book is placed with only one or two carriers, and whether key producers will remain in the buyerâ€™s employ postsale. Also, importantly, the multiple of revenue method does not take into account expenses of the selling agency, which are critical to understanding the sustainable profitability of the agency. For instance, if you have two agencies both with $2 million in total revenue, but Agency X produces only at a 10% profit and Agency Y produces at a 35%
profit, it would be improper to place equal values on the agencies based solely on the same revenue streams. As a result, an income-based approach is the more appropriate and reliable agency valuation method, based upon a multiple of net earnings (either pre-tax or after-tax earnings), and where the multiple can be adjusted to reflect the various risk factors associated with a particular transaction or selling agency. Finally, once an agency value and purchase price are agreed upon, the parties must consider the manner of payment for the agency assets or stock. Some sellers might prefer an immediate payout for their agency, others might prefer to be paid over time on a secured note, while still others might want the opportunity for a variable payout based on the future performance of the business. Although the marketplace continues to offer many opportunities to buy and sell insurance agencies, the decision to do so should be made only after careful consideration of the various legal and business issues involved in the process, and then only in consultation with your legal, tax, business and financial advisors. Christopher C. Cassara is a partner at Partridge Snow & Hahn LLP, a business law and litigation firm, with offices in Rhode Island and Massachusetts. He is a member of the Business Law Group and the Insurance Group, and represents sellers and buyers of insurance agencies.
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Trusted Choice® Expands 2013 Reimbursement Program Program reimburses members up to $500 for expenses for co-branding.
Trusted Choice® released revised guidelines for the Marketing Reimbursement Program (MRP) that has been extended for 2013. The program reimburses expenses incurred in 2013 by Trusted Choice agencies for co-branding materials such as business cards, letterhead, envelopes and marketing or advertising materials. It also provides reimbursement for creating or updating a digital presence to include the Trusted Choice logo, link to trustedchoice.com and the Pledge of Performance. In order to qualify for a reimbursement, the activity must Include the Trusted Choice logo in external messaging with Consumer impact, documentation that an expense was incurred and paid and that the nature of the expense is correlated to the external messaging and consumer impact. In addition to covering advertising, the 2013 guidelines remove a lifetime cap on MRP benefits that was implemented in 2012, so agencies that previously reached the maximum reimbursement will be eligible for funds again in 2013. Program guidelines & application available at trustedchoice.com/mrp.
We Are The Calm Before The Storm
One Size Definitely Does Not Fit All Every one of your customers with a home or business needs flood protection, no matter where they are. Even those who think they are covered may find out they are drastically underinsured. Big “I” Flood Program and Wells Fargo Special Risks now offer Excess over Primary flood as well as flood in Non-participating Communities and Coastal Barrier Resources Act designated properties. Submit your quote request on Big “I” Markets at www.bigimarkets.com. Linda Mackey, Program Manager n 800.221.7917, ext. 5380
Wells Fargo Special Risks
Winning Together! Independent Insurance Agents of Rhode Island
112th Annual Convention
hr corner A Good System for Discipline or Corrective Action
Dave Nichols Quality Transitions, Inc.
This is a continuing article in the series of human resource articles for The Anchor. My goal is to bring value to your organization in accomplishment of the Essentials of Human Resources. In past articles, we dealt with having a necessary proactive approach to discipline or corrective action. Hopefully, your organization has the appropriate documentation and communication systems in place for your work force that in the event you have to exercise discipline or corrective action you are in good shape. For this article, we want to discuss or review what a good discipline or corrective action system should consist of. In your employee handbook, you need to mention examples of work rules that need to be followed. In addition, you should communicate what happens if a work rule is broken. It is very important that we are consistent in doing this or you could be facing an unfair labor practice and possibly legal complications. A popular progressive/proactive system that employers have used for a number of years is a Corrective Action Process that consists of steps including a verbal corrective action, written corrective action, final written corrective action, and termination. This system gives the employee plenty of opportunities to correct problem behavior and at the same time, protects the employer. Also, there can be a disclaimer in the handbook that if the unacceptable behavior is extremely serious that the employer can go to any step in the cor-
rective action process to include termination. When an infraction takes place, typically there is a verbal corrective action. The supervisor needs to sit down privately with the employee and discuss the infraction. This should be done as soon as possible after the infraction has taken place. This needs to be documented with both parties signing off the document. Also included in the document should be a plan of action by the employee to correct the behavior while understanding that if it continues it could lead to more serious corrective action. If the behavior continues that affects performance, this leads in the next step to a written corrective action. Same principles take place as discussed with the verbal corrective action. If corrective action leads to a final written corrective action, there needs to be another supervisor present as a witness to the discussions as well as being included in the documentation. Follow the same principles as just stated. In addition, whoever takes responsibility for human resources administration needs to be kept informed of all developments. There are a lot of employers that take a further step during the final written corrective action stage and give the employee a final decision making leave that is paid (one-two days) to selfevaluate their situation and come back with a final decision to resign or understand that another infraction will lead to termination. They complete a written
The Anchor 20 Second Quarter, 2013
document stating all of this during the decision making leave. Obviously, progressive discipline or corrective action has had good experience getting improper behavior squared away at the early stages before things become much more serious. It is important the supervisor stay proactive and in touch with this process. Obviously, if the supervisor does not do a good job during this process it will put the
employer in a much more complicated position with the employee. As stated earlier, this can lead to an unfair labor practice or legal complication for the employer. In the next article, we will deal with termination. If you have done your homework up to this point, this is less complicated than if you havenâ€™t. Thanks for your time. See you next quarter.
Second Quarter, 2013 21
CASE LAW NOTE
A Review of Case Law of Interest to IIARI Members This feature of The Anchor reviews recent case law involving the insurance industry. Please contact the authors for more information: Jennifer R. Cervenka, Esq. and Melissa E. Darigan, Esq., Partridge Snow & Hahn LLP, 401-861-8200, www.psh. com. Pollution exclusion does not relieve insurer from duty to defend: Employers Mutual Casualty Company v. ELJ, Inc., et al., Providence County Superior Court, C.A. No. PC06-3960 (April 18, 2013) Summary: The Rhode Island Superior Court recently found that a pollution exclusion clause did not relieve an insurer of its duty to defend the policyholder in litigation over noise and dust allegedly created by the policyholder’s business obligations. Employers Mutual Casualty Company issued a commercial general liability policy to ELJ, Inc. The policy excluded coverage for bodily injury or property damage arising out “the actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” “Pollutants” was defined in the policy as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Tracy and Lane Ukura brought suit in 2005 against ELJ, a rock crushing and loam screening business, seeking recovery from the noise of ELJ’s operations and the accumulation of stone dusk on the Ukuras’ property. ELJ sought coverage for this claim under its Employers Mutual policy. Employers Mutual denied coverage and thereafter brought this action seeking a ruling that it had no duty to defend ELJ from the Ukuras’
claim. The Superior Court held that an insurer’s duty to defend is determined by applying the “pleadings test;” that is, the Court is required to look at the allegations in a complaint and determined if the plaintiff recites facts that bring the injury within the coverage provisions of the policy, irrespective of whether the plaintiff will ultimately succeed on its claims. Where the policy contains a “duty to defend provision,” any doubts as to the adequacy of the pleading to encompass occurrences within the coverage of the policy are resolved against the insurer and in favor of the insured. If this test is met, the insurer must defend the claim. Using this test, the Court found that the Ukuras’ complaint against ELJ alleging private nuisance, continuing trespass and intentional infliction of emotional distress, stated sufficient facts to bring their alleged injury within the coverage of ELJ’s policy with Employers Mutual, thus triggering the insurer’s duty to defend. In doing so, the Court rejected the argument by Employers Mutual that there is no duty to defend because the policy’s pollution exclusion bars the Ukuras’ claims, finding that “stone dust” and “sound” are not explicitly listed among the “pollutants” defined in the pollution exclusion of the policy.
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The Anchor 22 Second Quarter, 2013
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Swiss Re Corporate Solutions: A Trusted Partner For 25 years, the Big "I" Professional Liability Program underwritten by Westport Insurance Corporation, a member of the Swiss Re Corporate Solutions Group (rated A Excellent by A.M. Best), has been the premiere choice of IIABA member agents for insurance agents and brokers E&O insurance. The Big “I” Professional Liability Program offers not just a policy, but a comprehensive program for insurance agents. Over the past two decades the Big “I” Professional Liability Program, underwritten by Westport Insurance Corporation, a member of the Swiss Re Corporate Solutions Group, has grown into the largest and most stable insurance agents E&O program in the nation. Our member agents and brokers nationwide look to the program for stable rates and a long-term market that they can rely on to protect their greatest assets—their businesses. Visit www.IIARI.com today to learn more.
e&o corner Insurance Agencies and Brokerages Should Proceed with Caution When Served with a Non-Party Subpoena
James C. Keidel, Esq. Partner Keidel, Weldon & Cunningham, LLP
Christopher B. Weldon, Esq. Partner Keidel, Weldon & Cunningham, LLP
Insurance agents and brokers attending any of the errors and omissions seminars presented by us for IIARI during the past several years may recall that we have repeatedly provided counsel about how to proceed if a subpoena is received by the agency or brokerage requesting documents and/or deposition testimony. In this issue of The E&O Corner, we will discuss some of the issues relating to subpoenas served upon insurance agencies and brokerages and provide you with some guidance as to how those subpoenas should be handled. As we have repeatedly stated in our seminars, any agency or brokerage that receives a subpoena should proceed with caution. Although the caption of a subpoena may indicate the agency or brokerage is technically not a party to the legal proceeding, the fact is that a legal proceeding is pending and it is a mere formality for any party to add the agency or brokerage to the existing litigation. Attorneys will quite often serve subpoenas so that they can obtain documents and/or deposition testimony in order to â€œtest the watersâ€? as to whether or not there is a basis to assert an E&O claim against an insurance agency or brokerage. Accordingly, every agency or brokerage should have procedures in effect that are known by all employees concerning how to handle a subpoena. An agency or brokerage is legally obligated to comply with a subpoena or it risks being held in contempt of court. In other words, the agency or brokerage
cannot simply choose to disregard or ignore a subpoena. Therefore, we generally believe that an attorney should be involved to assist the agency or brokerage in handling a subpoena. Either the attorney will recommend compliance with the subpoena or work with the opposing attorney serving the subpoena to see if it can be modified in order to avoid the sometime over reaching aspects of some subpoenas. In some cases, the attorney representing the agency or brokerage will seek the intervention of the court to quash (dismiss by the court) the subpoena because it is improper or defective. Frequently, a subpoena is defective because it fails to comply with the statutory requirements concerning the manner in which the subpoena has been served, or the information asked for in the subpoena goes beyond the scope of information that may be requested. If an agency or brokerage complies with a subpoena without the assistance of an attorney, it is quite possible that it will be complying with a defective subpoena and, as such, disclosing information not required pursuant to Rhode Island law. In fact, responding to a defective or improper subpoena may inadvertently lead to disclosure of information protected by State and Federal privacy laws and regulations. Additionally, it may lead to the disclosure of proprietary information of your agency or the carrier you represent. Thus, in responding to a defective or improper subpoena, an agency or brokerage might put itself at
The Anchor 24 Second Quarter, 2013
risk for an E&O claim or lawsuit, or action by a regulatory body. The agency or brokerage should also note that language contained in many E&O policies defines a claim, in part, as including the receipt of a subpoena. It is important for every agency or brokerage to review the language of its own particular E&O policy relative to subpoenas so that it is familiar with applicable terms and conditions. Our recommendation has always been that if a subpoena is served upon an agency or brokerage, it should immediately tender the subpoena to its E&O insurer for handling. For example, the language of one E&O policy defines a claim as including the receipt of a summons, a subpoena, or any other notice of legal process. Any agency or brokerage that receives a subpoena and attempts to comply with it on its own without reporting to its E&O insurer runs the risk that it has failed to report a claim in accordance with the terms of the E&O policy. This failure could result in a disclaimer of coverage by the E&O insurer for any eventual claim or lawsuit. Additionally, many E&O insurance policies provide coverage to assist
the agency or brokerage in complying with subpoenas. This policy provision provides coverage for the assignment of counsel to assist an agency or brokerage in complying with any subpoenas it receives. In our experience, the assistance of an attorney in complying with a non-party subpoena reduces the likelihood that the agency or brokerage will be dragged into pending litigation. This is the reason why some E&O insurers provide subpoena coverage to their insured agencies and brokerages. The prudent insurance agency or brokerage should ensure all employees are familiar with an established procedure governing the manner in which subpoenas should be handled. Included in those procedures should be a method of notifying the E&O insurer whenever a subpoena is served. If, however, the E&O insurer does not assign counsel to assist the agency or brokerage in complying with the subpoena, the agency or brokerage should then consider retaining counsel on its own. By following these steps, the prudent insurance agency or brokerage will put itself in a better position to hopefully avoid becoming a party to litigation in which it has received a non-party subpoena. The law firm of Keidel, Weldon & Cunningham, LLP concentrates its practice in handling errors and omissions claims, litigation and loss control for insurance agents and brokers. Please direct any comments or questions to either James C. Keidel or Christopher B. Weldon either by mail at the firmâ€™s Rhode Island office located at 303 Jefferson Boulevard, Warwick, RI 02888, or by email at email@example.com or firstname.lastname@example.org or by telephone at 401-773-7730. The firm also maintains offices in White Plains, NY; Syracuse, NY; New York, NY; Wilton, CT; Philadelphia, PA and Bayonne, NJ.
Second Quarter, 2013 25
marketing thought Real Life Examples of How Social Media Can Benefit Your Agency
John Houle JH Communications
If you are still on the fence regarding the effectiveness of social media for your agency, then I urge you to read on to learn about some real-life examples of how social media can help your community and promote sales. Additionally, if you have already embraced social media to communicate your message, you may find some practical advice in this article. But first, if you haven’t bought in yet, or you need some justification as to why you’re investing in social media, keep in mind the following: • 27 percent of time spent online is with social media, and women spend 30 percent more time on social media than men • 70 percent of consumers trust brand recommendations from friends • Approximately 46 percent of online users count on social media when making a purchasing decision • The total amount of minutes people spend on Facebook each month is 700 billion If you’re starting out in social media, or considering investing more time and resources, keep in mind these actual case studies: A local insurance agency decided this year to start a company Facebook page. They added photos and content and engaged the staff to like their own company and recommend to friends. They were able to garner 77 likes organically, and two new strategies were recommended to increase their connections: 1) hold a contest, and with every new like,
that person would be entered into a drawing to win a free iPad; 2) work with a local charity, and for every new like a donation would be made. The agency opted to help promote a charity very near and dear to them. A local woman had been diagnosed with ALS, also known as Lou Gehrig’s disease, and the agency wanted to help raise money for her family. The agency sent out an eblast to all of their contacts, and the promotion went viral within hours. The end result was 733 new likes and considerable donations, not only from the agency but from other businesses and people wanting to also aide the family. The comments from people in the community continue to come in long after the promotion’s end. In addition to helping a family in their community, the agency also benefited from the extraordinary good will it generated. Another agency decided to utilize social media to announce the hiring of their new producer. They created a new Facebook page solely for the producer. They also ran a contest to give away an iPad, and offered several opportunities to improve the odds of winning. People received a number of virtual raffle tickets for connecting with the producer’s page, and even more tickets for allowing the producer to quote their auto or home insurance. This provided the new agent with an innovative way to connect with family and friends and softly sell auto and home policies with his new
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agency. The agency netted thousands of dollars in new business and provided a jump-start to the producer’s new sales initiative.
increased referrals, and overall improved brand recognition. It takes work and a commitment from senior management. In fact, everyone in the agency should be educated on the organization’s social media goals. In terms of commitment, you need to spend a minimum of 15 minutes per day to just get in the game, but to be aggressive a commitment of 2 hours per day is necessary. But as the previous examples have illustrated, your efforts can result in a substantial benefit to your agency.
Whether you decide to partner with a charity or give away an iPad, there are applications you can use to help manage your promotions. These applications lend a more professional look to your page, and help you keep track of all your new contacts. When social media works, you can expect more traffic to your website,
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Second Quarter, 2013 27
wc update Workers’ Compensation - What is Going On?
Michael Lynch Vice President, Legal Beacon Mutual
In my last column, I wrote on public policy considerations in workers’ compensation and potential legislative issues in this year’s General Assembly. This column will focus on the Workers’ Compensation Act and one of the most important elements of any workers’ compensation system: the death benefit. The number of work place fatalities in our state has, thankfully, been few. While there were five (5) work-related fatalities in 2010, the most recent year reported is 2011 where there were three (3). Before 2010, there were no more than three (3) since 2006 when there were six (6). While all will agree that one is too many, it is comforting to know that our General Assembly has ensured that the family of the deceased worker is financially protected in a number of ways. First, there is an expedited employer reporting requirement in the event of a fatality. In this circumstance, a First Report of Injury must be filed with the Department of Labor and Training within forty-eight (48) hours. The Workers’ Compensation Act provides for the payment by the insurance carrier of a one-time fifteen thousand dollar ($15,000.00) burial expense, regardless of cost. This is payable to the injured workers’ legal representative. If the deceased injured worker had no one dependent upon him or her for support, either in law or in fact, the employer, through its insurance carrier, must make an additional one-time payment to the Administrative Fund of $7,500.00. When there are no dependents, this ends the employer’s obligation.
Second, there is the issue of dependents. What is the indemnity benefit owed if there are dependents? R.I.G.L. § 28-33-12 provides that “if death results from the injury, the employer shall pay the dependents of the employee wholly dependent upon his or her earnings for support at the time of his or her injury or death, … a weekly payment equal to the rate that would have been payable for total incapacity to the deceased employee…”. The statute goes on to provide that “if the dependent is a surviving spouse, or surviving spouse upon whom there is dependent one or more children of the deceased employee including an adopted child or stepchild under the age of eighteen (18) years or over that age but physically or mentally incapacitated from earning, the employer shall pay the surviving spouse the weekly rate for total incapacity ... plus forty dollars ($40.00) per week for each dependent child.” For the surviving spouse, this benefit continues until remarriage or death, at which point if there remain any dependent children, the entire benefit goes to them. The surviving spouse is also entitled to a cost of living adjustment of four percent (4%) on every anniversary of the date of death for so long as he or she is eligible for benefits under this section. Dependents other than the spouse do not benefit from this entitlement. If there is more than one dependent child, after death or remarriage of a spouse, the benefit is divided equally among them. When the children are no longer statutory dependents, the benefit ends. This raises the legal question of
28 The Anchor Second Quarter, 2013
the definition of a spouse or a dependent. A surviving spouse and children of the deceased worker are conclusively presumed to be dependents. This includes a same sex spouse who is a partner in a civil union. The surviving spouse had to be living with the deceased. A child includes any born children and a child of the injured worker conceived, but not yet born, at the time of the injury. The child dependency benefit continues until age eighteen (18) or twenty-three (23) for those attending an accredited college or university. The statute also contemplates those who can prove “dependency”, such as older children, parents or some other relative. In this regard, the Act provides in pertinent part as follows: “No person shall be considered a dependent unless he or she is a member of the employee’s family or next of kin, wholly or partly dependent upon the wages, earnings, or salary of the employee for support at the time of the injury. If there is no person as provided in this section, then the parents of any employee who has not obtained
his twenty-first (21st) birthday shall be considered a dependent, regardless of whether dependent on the wages, earnings, or salary of the employee, or not.” The Workers’ Compensation Court is the final arbiter of the dependency question. If a non-child proves dependency, the entitlement is different. In that instance, it is the amount that the deceased worker had been contributing to the dependent, not to exceed the benefit otherwise payable to the wholly dependent person. This, of course, can continue indefinitely. In summary, the workers’ compensation laws of our state provide the financial protections for surviving dependents of workers’ who lose their lives as a result of work related injury. Of course, it is everyone’s hope that these benefits are never necessary. With a continued focus on safety by Rhode Island employers, we hope that this benefit never comes due. As always, please contact us here at Beacon with any questions.
29 Second Quarter, 2013
Don’t get caught - Big “I” Flood can help! Failure to oﬀer ﬂood insurance to each of your personal and commercial clients can create an enormous E&O liability for your agency. Why risk facing lawsuits from clients who experience ﬂood damage? Make documenting your oﬀer of ﬂood coverage part of your agency’s Best Practices. Not only will you protect your agency, your clients have an opportunity to purchase this important coverage. And Big “I” Flood has the forms to use! Big “I” Flood provides: ACCESS - In, Above & Outside of the NFIP! EDUCATION - Classroom CE or the new Flood Learning Center on VU ADVOCACY - Representation on Capitol Hill & NFIP advisory committees Learn more at www.iiaba.net/Flood, or contact Big “I” Flood Program Manager Linda Mackey at email@example.com or (800) 221-7917. Let us explain how we operate in, above, and outside the NFIP!
Action Agent & Broker Potpourri
William Hunt Receives Person of the Year Award from The Pawtucket Foundation The Pawtucket Foundation’s Annual Awards Celebration recognizes individuals and organziations that have made significant contributions to the City of Pawtucket. This year they honored William J. Hunt with the Person of the Year Award. Bill is truly invested in the City of Pawtucket and has made countless contributions through his work with the Pawtucket Foundation, Pawtucket Rotary Club, Memorial Hospital of Rhode Island and the YMCA of Pawtucket. Additionally, Bill has been a leader in the business community as an active member of the Blackstone Valley, Rhode Island and Northern Rhode Island Chambers of Commerce and served as a delegate to the White House Conference on Small Business. The Pawtucket Foundation has chosen to honor Bill for these outstanding contributions and his commitment to the quality of economic and community life in Pawtucket. Safeco Insurance® recognizes Soucy Insurance Agency for Excellent Performance Safeco Insurance has recognized Soucy Insurance Agency of Woonsocket, with a Premier Partner award for performance and partnership. Fewer than 10% of independent insurance agencies that sell Safeco® personal lines products receive this distinguished honor. “Inclusion in the Safeco Premier Partner Program is reserved for only our very best agencies,” said Matthew Nickerson, president of Safeco Insurance. “The commitment and high achievement of these top performers have earned them access to special resources and programs that support their ability to better serve their customers and grow their agencies.” “We are honored to be recognized by Safeco as a Safeco Premier Partner,” said David Soucy, president of Soucy Insurance Agency. “We make it a priority at Soucy to deliver superior-quality service and the trusted advice that our customers want.”
Brian Hunter Elected Chairman of the 2013 Board of Directors of the Northern RI Chamber of Commerce Brian Hunter, president of Hunter Insurance, has been elected Chairman of the Board of Directors of the Northern RI Chamber of Commerce. He has been on the Northern RI Chamber Board for five years and will serve as Chairman throughout 2013. Brian will continue to be a tremendous asset to the Chamber as Chairman of the Board,” said John C. Gregory, President and CEO of the Northern RI Chamber. “Brian possesses keen business acumen and is committed to improving the economy of our community and our state.” Brian has owned and operated Hunter Insurance for 25 years, and has over 30 years of experience in the insurance industry. He has received numerous accreditations, including Chartered Property Casualty Underwriter and Certified Insurance Counselor. Additionally, he served as a Rhode Island State Senator and has been a leader in the insurance industry as past president of the Independent Insurance Agents of Rhode Island. Brian is a graduate of Bryant University with both a Bachelor of Science and an M.B.A. in Business Administration. “I am honored to have been elected Chair of this great organization,” said Hunter. “Now more than ever, we need sound solutions to truly help small business owners. My goal is to work closely with John Gregory and the entire Board to help make Northern Rhode Island a great place to live and work.”
31 Second Quarter, 2013
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