July 2015 WI Independent Agent

wisconsin

INDEPENDENT AGENT JULY 2015

WE’RE INDEPENDENT...TOGETHER

RENEW YOUR MEMBERSHIP ONLINE AT IIAW.COM SALES & LEADERSHIP CONFERENCE EVENT SCHEDULE PAGE 6

People who run a business know. The most valuable things

are also the hardest to get.

Your customer’s business didn’t grow overnight. It came from years of hard work, confidence in what they could do, and making smart decisions.

That’s why an insurance policy from West Bend makes sense. It protects these valuable and hard-earned businesses so your customers can focus on doing what they do best: helping children, families, and individuals enjoy safe and fun sports and leisure activities.

And as an Official Supplier of The Silver Lining, it’s backed by your knowledge and experience.

West Bend. Insurance your customers buy when they can’t afford anything less.

wisconsin

INDEPENDENT AGENT JULY 2015 Eric Schwartz, Editor

Open Door Policy Thank Yous, Membership Renewals & Committee Involvement. . . . . . . . . . . 5 Perpetuation Selling Your Agency May Be Hazardous To Your (Financial) Health . . . . . .8

On The Cover…

Government Affairs Proposed Chiropractor, Optometry & Podiatry Mandates Will Increase Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

5,000 plus agency members and more

2015-16 Committee Request Information . . . . . . . . . . . . . . . . . . . . . . . . . 12

largest and most influential independent

Marketing Three Problems With Running An Agency Without A Marketing Plan . . . 20

We’re Independent…Together. The IIAW’s than 80 supporting companies make us the insurance agent association in Wisconsin.

That’s a wide network of hardworking

Virtual University Some Employers Shortchanged On Employee Dishonesty Coverage . . . . .22

people making a difference. Thank you for

Errors & Omissions Cause For Alarm?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

your membership for granted and it’s why

Commentary From Counsel WI High Court Issues Landmark Decision Regarding Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Members in the News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Independent Insurance Agents of Wisconsin 725 John Nolen Drive, Madison, Wisconsin 53713 Phone: (608) 256-4429 or (800) 362-7441 ■ Fax: (608) 256-0170 ■ Web: www.iiaw.com Executive Vice President - Matt Banaszynski 2014-2015 Executive Committee President.................................................... John Wickhem P.O. Box 1500, Janesville, 53547-15 President-elect ................................................ Steve Leitch P.O. Box 85, River Falls, WI 54022 Secretary-Treasurer ....................................... Matt Weimer 100 North Corporate Drive #100, Brookfield, WI 53045 Chairman of the Board ................................ Dave Dunker P.O. Box 443, Brookfield, WI 53008-0443 State National Director ................................ Linda Steiner 555 Main Street #320, Racine, WI 53403 2014-2015 Board of Directors Mike Ansay 101 East Grand Ave. #11, Port Washington, WI 53704 Mark Behrens 555 Main Street #320, Racine, WI 53403 Jason Bott 330 East Kilbourn Avenue, Milwaukee, WI 53202 Gerald Couri 379 West Main Street, Waukesha, WI 53186 Mike Farrell 1300 S. Green Bay Rd., Racine, WI 53406 Chris Hanson 5601 Grande Market Drive, Appleton, WI 54913 Lise Meyer Kobussen P.O. Box 633, Sauk City, WI 53583 Brian McClone 505 North Westfield Street, Oshkosh, WI 54902 WISCONSIN INDEPENDENT AGENT

Jeff Rasmussen 525 Junction Road, Madison, WI 53717 Michael Walston P.O. Box 236, Kewaunee, WI 54216-0236 Darrel Zaleski 4233 Southtowne Drive, Eau Claire, WI 54701 2014-2015 Committee Chairs Agency Operations....................................... Kim Dandrea 1300 South Green Bay Rd. #100, Racine, WI 53406 Automation/Technology ............... Cathleen Christensen P.O. Box 949, Fond du Lac, WI 54936-0949 Emerging Leaders ...................................... Janelle Higgins 6200 Mineral Point Road, Madison, WI 53705-4504 Employee Benefits............................................. Tim Bever 555 Main St. #320, Racine, WI 53403 Finance & Compensation ............................ Matt Weimer 100 North Corporate Drive #100, Brookfield, WI 53045 Government Affairs .......................................Skip Hansen 100 North Corporate Drive #100 Brookfield, WI 53045 Industry Relations ....................................... Kevin Murray 525 Junction Road, Madison, WI 53717 Marketing & Membership Development ........... Jeff Thiel P.O. Box 1610, Waukesha, WI 53187-1610 Smaller Agencies .................................... Michael Walston P.O. Box 236, Kewaunee, WI 54216-0236 Technical ................................................... Mark Truyman P.O. Box 6 , Seymour, WI 54165

your membership in the IIAW. We never take we strive to provide high quality services year in and year out. We’ve had an amazing year so let’s keep it going! Renew your membership online at IIAW.com.

> ADVERTISERS & INFORMATION AAA Wisconsin ................................................ 34 ACUITY Insurance ........................................... 35 Amerisafe........................................................ 16 Applied Underwriters ........................Back Cover Badger Mutual ................................................ 32 Burns & Wilcox ................................................ 14 Compass Specialty ..........................................18 Erickson-Larsen, Inc....................................... 29 Guard Insurance ............................................. 33 IIAW Continuing Education ............................. 24 Insurance Associates of America .................... 19 JM Wilson ....................................................... 23 Pekin Insurance............................................... 15 Robertson Ryan................................................ 9 Sales & Leadership Conference ........................ 6 SECURA Insurance ........................................... 21 SFM Insurance ................................................. 17 The IMT Group ................................................ 25 West Bend ........................................................ 2 Western National.............................................. 4 Wilson Mutual ..................................................10 JULY 2015 | 3

4 | NOVEMBER 2014

WISCONSIN INDEPENDENT AGENT

OPEN DOOR POLICY

THANK YOUS, MEMBERSHIP RENEWALS & COMMITTEE INVOLVEMENT This past year brought the Association a lot of success — success that is directly attributed to our staff, Board of Directors, and of course, our members.

The leadership of John Wickhem as President and Dave Dunker as Chairman of the Board helped the Association continue to provide industry leading products and services for our members as well as produce one of the most successful conventions in recent memory. It has been wonderful working with Dave and John. Both possess an unparalleled passion for the Association and for helping advance and protect the independent insurance agency system in Wisconsin.

“We’re Independent…

Together” is more than just a slogan to us. We truly believe that by working together we can make the independent agency channel even stronger.

As John transitions to Chairman, Dave moves on to enjoy more of his free time. We hope to keep Dave engaged and involved in the Association he has helped reshape. It has been a tremendous experience to learn from these two great men and I look forward to working with our Executive Committee, new President Steve Leitch, new board members Cindy Burns and Jack Reisch, and the rest of the Board of Directors as we continue to improve the Association.

WISCONSIN INDEPENDENT AGENT

Renew Your IIAW Membership The IIAW strives to be a thought leader, advocate, business builder and partner to all of our members. “We’re Independent…Together” is more than just a slogan to us. We truly believe that by working together we can make the independent agency channel even stronger.

We recognize that you have options when it comes to Association membership. We greatly appreciate your membership and the opportunity to serve you, and we hope you take advantage of our exclusive insurance products and services as well as many other tools and resources.

Let’s keep the positive momentum moving — renew your membership today at IIAW.com!

I am echoing his call and would like to extend an invitation to you to become part of one of the nation’s largest and finest association leadership teams. Those willing to serve will be invited to our annual Fall Planning Session on September 16 at Milford Hills Hunt Club in Johnson Creek. The Association provides your lodging, meals and drinks for the event.

This year we will also be offering the opportunity for attendees to join in on a day of shooting at Milford Hills. Options include a sporting clays course, an Annie Oakley shoot off competition, and other fun events that all benefit the Insuring Wisconsin Growth Fund Conduit. The shoot kicks off around 2 PM after the annual planning meeting. Watch this article and our weekly Spotlight e-newsletter for more details.

Join An IIAW Committee As President-elect Steve Leitch laid out in his committee request letter, “The IIAW’s strategic plan for this Association is to bring together agents and industry partners to create innovative and industry-leading member services and resources that could serve as a national model for other states to follow.

Creating new professional development and networking opportunities throughout Wisconsin and at national IIABA conferences are the cornerstones of our plan.”

Also, keep your eyes peeled for more information regarding how to sign up for a committee. If you have any questions about committee service and which committee might be the best to serve on, please don’t hesitate to contact me.

> Matt Banaszynski is the Executive Vice President of the Independent Insurance Agents of Wisconsin.

Contact him at matt@ iiaw.com.

JULY 2015 | 5

2015 SALES & LEADERSHIP CONFERENCE EVENT SCHEDULE WEDNESDAY, JULY 15 All Wednesday events are adults only.

1 PM GOLF, WILD ROCK GOLF CLUB AT THE WILDERNESS RESORT – 18 HOLE SHOTGUN START Hole events, flag contests, giveaways and more!

6-7 PM 7-9 PM

WELCOME RECEPTION & COCKTAILS AT WILD ROCK WISCONSIN COOKOUT AT WILD ROCK

THURSDAY, JULY 16 All conference events are hosted at the Wilderness Resort.

8-9 AM

BREAKFAST – FAMILIES WELCOME!

8:30-10 AM

PANEL SESSION TECHNOLOGY: THE FUTURE WAVE PANEL The session’s objective is to highlight current and future technology (hardware, software, apps, etc.) that impact and assist individuals and organizations in the insurance industry.

10-10:15 AM

BREAK

10:15-NOON

INDIVIDUAL CONTRIBUTOR TRACK MANAGING YOUR PERSONAL BRAND: THE FOUNDATION TO A FULFILLING CAREER Taura Prosek, Career Accelerate, LLC This session provides participants with a career management road map that begins with self-reflection and discovery. Session objectives: • Demonstrate the process to identify seven to 12 guiding principles that act as your foundation when evaluating future career options.

• State your value proposition and ensure your personal branding is in alignment with market perception.

• Follow a guide to complete your career marketing plan to ensure you know what you want and are able to clearly articulate why you are qualified. You will understand the role of an individual development plan in this annual review process.

• Design your personal career advisory board and create an action plan to build it and nurture it.

• Share tips and techniques related to the marketing materials that back your brand including conversational strategies, LinkedIn profile, and professional bio and resume.

10:15-NOON

MANAGER/LEADER TRACK ESSENTIALS OF LEADERSHIP: PEOPLE, PROCESSES, PLANNING AND PROBLEM SOLVING Steve King, Director, UW-Madison, Center for Professional and Executive Development Think of the people you manage. Do they: • Miss problems altogether?

• Rely too heavily on policy and procedures?

• Show up at your door with problems but no solutions?

• Draw conclusions without appropriate analysis?

• Tend to focus on “who’s to blame”?

This session will help you to coach and lead staff in effective problem solving. It is human nature to jump to idea generation and quickly find solutions to problems or issues. But, if the right problem isn’t being addressed or the problem is not really understood, then solutions are not very effective. Learn how to avoid these traps and get to the bottom of things in a productive way.

NOON-1 PM

LUNCH – FAMILIES WELCOME!

1-3 PM

COACHING AND MENTORING WORKSHOP - FULL GROUP ENGINEERING A PASSION FOR DEVELOPMENT Artell Smith, Adjunct Faculty, UW-Madison, Center for Professional and Executive Development This session will advance participant skills in the critical leadership competency areas of coaching and mentoring. Through a series of crisp case studies, participants will hear from leaders and managers about the significant impact a coach or mentor had on their lives in general, and their careers in specific. Session objectives: • Identify behavioral competencies essential for effective coaching and mentoring, in both personal and commercial settings.

• Examine the techniques for leaders to build the necessary self-awareness to powerfully impact those who are being coached or mentored.

• Learn from authentic examples of successful coaching and mentoring, and identify how various behavioral competencies were positively demonstrated.

• Distinguish between the methods to drive both short-term results and long-term success for those who are coached or mentored.

• Create a simple but impactful action plan to implement key takeaways.

12:30-5:30 PM FREE TIME Visit our poolside cabana sponsored by SECURA Insurance.

6:30-9:30 PM

SUNSET DINNER CRUISE – FAMILIES WELCOME! Enjoy great food, music, beautiful scenery and a pre-dinner stroll through the torchlit paths of Witches Gulch.

Don’t miss this unique experience for all ages! Round trip transportation provided. Transportation departs from the Wilderness Resort at 6 PM sharp. RSVP required. Sponsored by the IIA of IL Young Agents.

REGISTER AT IIAW.COM

STAY CONNECTED!

2015 SALES & LEADERSHIP CONFERENCE EVENT SCHEDULE FRIDAY, JULY 17 All conference events are hosted at the Wilderness Resort.

8-9 AM

BREAKFAST – FAMILIES WELCOME!

9:15 AM-NOON INDIVIDUAL CONTRIBUTOR TRACK INFLUENCE BEYOND THE ORDINARY: EFFECTING MEANINGFUL CHANGE IN THE WORLD AROUND YOU Artell Smith, Adjunct Faculty, UW-Madison, Center for Professional and Executive Development This session will build upon the behavioral skills identified in the Coaching and Mentoring session and further enable participants to make a durable difference in the day-to-day world in which they lead their lives. Session objectives: • Define and describe the concept of a “durable difference” in the application of critical influence skills.

• Bring to conscious awareness how the personal concept of SELF can either help or hinder the relationships with OTHERS in many different settings.

• Identify the characteristics of an influence agenda and create an outline for the future.

• Identify skills and competencies that frame influence beyond the ordinary sense, and advance materially the success of individuals and organizations.

9:15 AM-NOON MANAGER/LEADER TRACK FINANCIAL ACUMEN Martin Halek, Faculty, Wisconsin School of Business, UW-Madison Martin Halek, Ph.D., will discuss topics targeting the financial assessment of an insurance organization. Stakeholders possess various concerns about the financial well-being of an insurer; however, it is not always clear how to evaluate an insurer’s financial position. Dr. Halek will explain key financial statement ratios that can help assess the success of a company’s strategies. He will also discuss the development, interpretation and role of insurance-specific financial and performance measures. The audience will have an increased insurance industry financial acumen.

NOON-1 PM

LUNCH – FAMILIES WELCOME!

1-3 PM

EMOTIONAL INTELLIGENCE WORKSHOP - FULL GROUP HOW TO WORK MORE EFFECTIVELY WITH PEOPLE Kathryn Jeffers, Adjunct Faculty, UW-Madison, Center for Professional and Executive Development Good working relationships, the kind that foster trust and frankness, do not happen by chance - they happen by design. Session objectives: • Three options we can use when there is an issue to address.

• Increasing emotional intelligence competencies, especially in difficult conversations, so we can talk to each other rather than • Customizing feedback and coaching to the receiver. about each other.

• Indicators of willingness or unwillingness to be coachable.

• Actions that most impact how our communication is received.

• Fact checking for more accuracy and less interpretation.

• Five habits of emotionally intelligent people.

• Listening without defensiveness, shutting down and conflict • How to change norms that need to be improved. avoidance.

• Behaviors that most effect morale and productivity.

• Developing impulse control by managing triggers and upsets.

3 PM CONFERENCE ADJOURNS Registration information on next page.

Steve King is the Executive Director of the Center for Professional and Executive Development for the Wisconsin School of Business at UW– Madison. Prior to taking this position, Steve held the positions of Vice President of Global Talent Management for Baxter International, Senior Vice President of Human Resources at Hewitt Associates, and Chief Learning Officer at Hewitt Associates.

STAY CONNECTED!

Kathryn Jeffers is a writer and teacher who delivers training programs that teach people how to build better working relationships. She coaches teams, managers and executives on how to increase their leadership capacity and accomplish their business goals. She is the author of numerous published articles in the area of organizational development and is the co-author of “Finding Solutions to Workplace Problems,” and “Don’t Kill the Messenger.” Her diverse list of clients include IBM, Wausau Insurance, U.S. Navy, Duke University Medical Center, Ryder Truck, TDS Telecom, IRS, Aurora Health Care, Briggs and Stratton, U.S. Forest Service, Mayo Clinic and many others.

P. Artell Smith is Senior Vice President and Chief Human Resources Officer for Aon Hewitt, a global provider of HR Solutions with more than 27,000 employees and $4 billion in annual revenue. Over his 15-year career at Aon Hewitt, he has also served as Chief Learning Officer, Corporate Talent Programs Leader, CAO & CHRO for Sageo, Ltd. (a Hewitt

subsidiary), N.A. Benefits Customer Service Operations Leader, and various other internal and client-facing leadership positions.

Taura Prosek has spent eight years of her career in talent management, recruiting and coaching, and 12 years in business development. She has been Series 7 and 63 licensed working in the financial services industry and has worked for a Fortune 50 manufacturing company. Taura is currently a career coach and program manager for evening and executive MBAs at The Wisconsin School of Business serving over 250 business leaders. She earned her masters of management degree (MBA) from Northwestern Kellogg and her bachelors degree (BBA) in finance from UW-Madison. She is a certified executive coach and trained facilitator conducting workshops and seminars on all topics related to career, sales and leadership.

REGISTER AT IIAW.COM

INSTRUCTORS

Dr. Martin Halek (Ph.D., Wharton School, University of Pennsylvania, M.S., UW-Madison, and B.A., Whitman College) joined the Actuarial Science, Risk Management and Insurance Department at the University of Wisconsin in January 2008.

Prior to this position, he was an assistant professor at the University of Georgia and the University of North Carolina-Charlotte. His areas of research include insurance economics, insurer ratings and financial markets, insurer loss reserving practices, adverse selection, hazard risk assessment, and transitioning insurance markets of Eastern Europe.

PERPETUATION

SELLING YOUR AGENCY MAY BE HAZARDOUS TO YOUR (FINANCIAL) HEALTH AN ECONOMIC CASE FOR INTERNAL PERPETUATION If you just sold your agency to one of the many private equity backed brokerage firms, congratulations, but you may want to flip this page.

Now that the former agency principal has moved on to the next article, I would like to tell you why I believe there is a good reason for you to strongly consider perpetuation for your agency. Our agency seller colleague, who is now reading the next article, may regret having sold the agency his or her family built over the last three generations.

After doing the math, you may find that a perpetuation is potentially more attractive than an outright sale, even given the recent frothy deal valuations.

There is a sound and understandable economic justification that suggests that there is as much value to be realized over time by retaining and investing in your agency. After doing the math, you may find that a perpetuation is potentially more attractive than an outright sale, even given the recent frothy deal valuations.

Consider what happens when you completely sell your agency to a third party. In exchange, for likely a very tidy sum, you give up all of the future cash flows of the agency, and all of the clients you and your family have amassed.

8 | JULY 2015

Chances are that the guaranteed portion of the sale is all that may be realized because there is risk of achieving the full earn-out beyond your control. Also, since you no longer own the shares, you cannot enjoy any future appreciation in the value of the stock.

When you take the sale proceeds, besides purchasing a sailboat, you will need to make investments in other assets, such as securities, which will probably not produce a yield as great as the return from running and owning a good performing agency. You will certainly not be able to duplicate the return you would receive from owning the agency with any alternative investment approaching a similar risk profile. If you perpetuate your agency, even if you sell a small share to employees, chances are that you will have a more valuable agency in the coming years such that your (smaller) ownership share is worth more down the road than the full share would be worth today.

Here is a brief description of the math exercise you may wish to attempt. The impact of taxes will not be considered.

If one assumes an agency with commission revenue of $5.0 million with relatively good performance delivering a 22.5 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin, the value on an outright sale may be $9.5 million. Conversely, the value for an internal sale, of less than a full interest, would be $5.6 million. The EBITDA valuation multiples used are conservative — 8.5 and 5.0 times, respectively.

Now assume that you sell 30 percent of the shares of your agency to your best producers.

Because you were able to retain your best people with an equity stake, they are even more productive and your agency revenue records organic growth of 5 percent per year and grows to $6.4 million revenue in five years. At the 22.5 percent EBITDA margin and same 5.0 multiple, the agency is now worth $7.2 million and your 70 percent interest is worth $5.0 million. But, over the same period, you received annual cash flows from your 70 percent stake totaling $4.5 million. Add the cash flows received to the projected value and your “total investment” is worth approximately $9.5 million.

While the numbers are simplified and ignore taxes and the time value of money, a case can be made that perpetuation can be very attractive since modest growth and retention of cash flows yields a similar value after five years.

The best part is that you can continue to do this serially for as long as you care to bring on additional owners or allow the widened group of owners to increase their shares.

In addition, you always have the ability to sell out in total, should you want to. This is the equivalent of having the best of both worlds.

Naturally, you would need sound legal advice to craft the share purchase and redemption agreements.

Attractive Choice Here is another thought worth considering but I can’t model it out for you. Why are agencies so attractive?

WISCONSIN INDEPENDENT AGENT

PERPETUATION Besides the fact that there is a lot of capital in search of a return hoping to tap into your reliable and recurring cash flow stream, agencies own something that lends great value to the cash flow. Agencies are in the enviable position of “owning the customer.” The ability to own the customer is exactly what is driving entrants such as Google into your industry.

They desperately want a piece of the insurance distribution space. Google is not setting out to be an insurance carrier since that risk is too great. Don’t be afraid of Google entering your industry but ask yourself why they are entering and you will realize that you have something very special. That is why they want a part of it.

Think next for a moment of the Amazon model. Amazon is doing all it can do to become the distributor of choice to the consumer for all types of goods. The ultimate value of, and success of, Amazon will be realized when one no longer thinks of driving to Walgreens to purchase deodorant, but simply orders it online from Amazon over their tablet and it is delivered to their door, with free shipping. Being the distributor is the preferred, and far less risky, place to be than being the manufacturer or producer of the product. Clients are satisfied when given wide choices, with excellent guidance and support, preferring to repeatedly purchase through a single point of sale. Does this sound familiar to your business?

Consider approaching perpetuation candidates at an earlier age by offering equity ownership in your business. It has been said that talent flows to equity. I would advise you that the opportunity to purchase equity in your business only be extended to those individuals that have demonstrated that they are high performers: D Those who are able to produce business, manage relationships and exhibit the same passion you have for your business and want to be part of its future.

D Those who are willing to devote some of their financial resources to buy into your business. Equity ownership is a proven way to attract and retain the best talent.

Those potential owners are encouraged to obtain a loan from a specialty lender such as InsurBanc secured by the stock purchased. As a seller, you want the purchasers to actually “buy” the equity. This places the exercise of financial discipline on the part of the buyers and readies them for greater financial responsibilities in the future.

To facilitate the financing, as a seller, you would agree to the bank that you would repurchase the shares to regain control of the stock, likely at a discount, in the event that one of the minority principals defaulted on their loan. The downside risk to you as a seller is therefore greatly diminished.

Perpetuation Scenarios There are a variety of perpetuation scenarios that are available. I will focus on the simplest and easiest to implement.

Now, you may ask, “What is the best way to start the process of planning for and implementing a perpetuation based on a sale of stock to your future leaders?” The

agency principal who is considering what I have discussed will need to have a very good assessment of the current value of their agency and a projection of the value of the agency several years from now after the implementation of the perpetuation plan and making appropriate investments in the business. We would be very pleased to provide some advice to you and provide referrals for qualified valuation consultants. Always seek accounting and legal advice from the best qualified professionals.

Consider approaching perpetuation candidates at an earlier age by offering equity ownership in your business. It has been said that talent flows to equity.

We have all been reminded repeatedly of the challenges facing the industry. Crafting and implementing a perpetuation strategy cements your chance for a solid financial future by widening ownership in your agency and diversifying > Robert Pettinicchi the ages of the is executive vice owners, while giving president, chief lending officer, at you the best options InsurBanc. Email: to maximize your rpettinicchi@ investment.

InsurBanc.com.

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Plan your future with Robertson Ryan & Associates͘ LJ ũŽŝŶŝŶŐ ŽƵƌ ƚĞĂŵ ŝƚ ĂůůŽǁƐ LJŽƵ ƚŽ͗ ͻ ͻ ͻ ͻ ͻ

Keep your book Remain a trusted advisor to your clients to give them peace of mind ŽŶƟŶƵĞ ǁŽƌŬŝŶŐ ƵŶƟů LJŽƵ ĚĞĐŝĚĞ ƚŽ ƌĞƟƌĞ Find the right buyer for your book within Robertson Ryan to maximize your return Ğ ŝŶ ƚŚĞ ϯϬй ƚŚĂƚ ŚĂǀĞ Ă ƉůĂŶ

&Žƌ ŵŽƌĞ ŝŶĨŽƌŵĂƟŽŶ ĐĂůů 'ĂƌLJ ƵƌƚŽŶ͕ ŚŝĞĨ KƉĞƌĂƟŶŐ KĸĐĞƌ͕ Ăƚ ϰϭϰ͘ϮϮϭ͘Ϭϯϴϲ͘ ůů ĐĂůůƐ ǁŝůů ďĞ ŬĞƉƚ ŝŶ ƚŚĞ ƐƚƌŝĐƚĞƐƚ ĐŽŶĮĚĞŶĐĞ͘ WISCONSIN INDEPENDENT AGENT

JULY 2015 | 9

GOVERNMENT AFFAIRS

PROPOSED CHIROPRACTOR, OPTOMETRY & PODIATRY MANDATES WILL INCREASE COSTS IIAW and other business groups oppose new proposal as more government red tape The Independent Insurance Agents of Wisconsin (IIAW) have joined together with a coalition of influential state business organizations to lobby against a legislative proposal that would establish new and costly insurance mandates for chiropractic, optometric and podiatry services in Wisconsin. The proposed insurance mandates for these providers are extensive, complicated and certain to increase healthcare costs for businesses and their employees.

It was brought to our attention several weeks ago that the Wisconsin Chiropractic Association and the Chiropractic Society of Wisconsin, along with representatives from the optometry and podiatry industries, have been aggressively lobbying state lawmakers to include into the state budget bill a number of sweeping changes to Wisconsin’s health insurance laws. These groups are asking the legislature’s 16-member budget-writing committee to include these changes in a wrap up motion to the state budget without any proper committee proceedings or sufficient public input from stakeholders.

The coalition of businesses objects to this lack of an open process and equally opposes the changes they are seeking. Specifically, these Madison-based chiropractor groups are intentionally misleading members of

More insurance mandates and higher health care costs are not what our health care system needs right now. the legislature and the public by deceptively calling their plan The Chiropractic Insurance Equality Modernization Act of 2015. These chiropractors are falsely accusing insurers of “discriminating against chiropractors and chiropractic services.” And groups representing optometrists and podiatrists are also piling on in an attempt to convince policymakers that they should alter state health insurance laws under the guise of “fairness.

The numerous mandates being sought by WISCONSIN INDEPENDENT AGENT

these specific provider groups represent the ultimate special interest legislation at its worst. These mandates expand the role of government and fundamentally infringe upon competition and private free market principles. The IIAW and the broader business coalition hope that Republican legislative

leaders, who control both houses of the legislature, will make the right decision and reject any effort to include in the state budget provisions that will lead to increased healthcare costs for consumers.

At the very least, these ideas need to be debated in a separate bill and carefully scrutinized through the normal legislative process. More insurance mandates and higher health care costs are not what our health care system needs right now. Many consumers are already seeing double-digit insurance premium costs primarily as a result of rising medical costs in conjunction with the federal Affordable Care Act. Highlights of the proposed new mandates include: 1) Require that copays and coinsurance for chiropractors, optometrists and podiatrists must be no greater than those charged for the same or similar services provided by a primary care physician. Copays and coinsurance are structured to help encourage beneficiaries to only seek medically necessary care and to do so in a manner that promotes the delivery of health care services to keep costs low and quality high. This new mandate will hurt the ability of health plans to direct the delivery of care in the most cost effective

manner possible and fails to recognize the differences inherent in the training and practices of these providers.

2) Create an Any Willing Provider requirement for chiropractors, optometrists and podiatrists. Any willing provider laws allow a provider to participate in a health plan’s network if certain criteria are met. Such laws serve to weaken the core principle of managed care and would undermine the ability of a health plan to define its network leading to higher costs and lower quality.

3) Create a new private cause of action allowing chiropractors, optometrists and podiatrists to sue insurers. The Wisconsin Legislature has enacted significant and meaningful civil liability reforms over the past four years. This language takes our state backwards by creating new ways to sue the insurance industry.

4) Create unwarranted, new regulations for the insurance industry. For the past several years, the governor and legislature have focused on reducing government regulations and the administrative burden on businesses.

This proposal again takes us backwards and would require more government red tape by price fixing compensation for these health providers and requiring the government to enforce compliance.

Wisconsin has a robust, affordable and competitive private health insurance market.

The insurance industry and agents who work on the front lines with consumers have dedicated countless hours of expertise and resources in order to adapt to the new federal health insurance law. These special interest insurance mandates being proposed are untimely and will only drive up health care costs > Misha Lee is Owner/ at a time when legislators Founder of Lee should be laser focused on Government Relations, finding ways to reduce the LLC and lobbyist for IIAW. Follow Lee health care cost burden for Government Relations on Twitter @mishavlee. our citizens.

JULY 2015 | 11

12 | JULY 2015

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JULY 2015 | 13

&

Your traditional insurance markets can handle most of your clients’ personal insurance needs, but not all. Even wholesalers have their limits, unless your wholesaler is Burns & Wilcox. As the largest personal insurance wholesaler, our unequaled access to markets means quick solutions for all your hard-to-place risks. Don’t call just any wholesaler.

Just call Burns & Wilcox.

Milwaukee, Wisconsin | 262.347.0266 toll free 800.544.5700 | fax 262.347.0440 milwaukee.burnsandwilcox.com Minneapolis, Minnesota | 612.564.1880 toll free 800.328.1693 | fax 612.564.1881 minneapolis.burnsandwilcox.com Commercial | Professional | Personal | Brokerage | Binding | Risk Management Services

DON’T WAIT TO TAKE ACTION 3 REASONS TO REPORT AN INCIDENT THAT COULD TURN INTO A CLAIM

Did you know that if you have a potential E&O incident, you should report it to Swiss Re even before it’s a full-fledged claim? A typical agency reaction is that the mere reporting of a claim or potential claim could result in adverse underwriting action taken against the agency.

Here’s what really happens: 1. Swiss Re will help you make your “good will” effort legal.

If fact, Swiss Re will advise and help you with legal documents if you want to pay a “good will” incident without submitting it as a claim. They’ll help you formulate a letter for your insured to sign that states your payment releases you from further obligation on the matter.

2. By Handing A Potential Claim Yourself, You Could Void Your E&O Coverage If you take action on a potential claim without notifying Swiss Re, you are in violation of the policy contract (Page 3 of 16, III. REPORTING AND NOTICE, A).

Should the incident escalate and you then decide to report the claim, you could be denied if you have already admitted liability, participated in settlement discussions, incurred any cost of expense, produced documents, provided a recorded statement, or given any deposition regarding any actual or alleged wrongful act.

Since the Swiss Re policy is a claims made policy, it is to your benefit to report any and all claims/potential claims to ensure that they are reported within the policy period.

3. When Will A Claim Effect My Rates?

As a general rule, if no reserves or payments are applied to a claim, no underwriting

action will be taken.

For the purposes of both the Loss Control Credit and the Claim-free Experience Credit, a claim is defined as an Errors and Omissions incident or situation for which any expense payment, any loss payment, or any loss reserve is made or established by or on behalf of the insured. The credits are not affected until a claim reaches a certain threshold (plus any applicable deductible) based on Gross Annual Premium.

Take advantage of the services that you have paid for with your premium. Swiss Re’s claim counsel wants to provide you with the tools and expertise to keep your agency successful and claim-free.

> Meggen Gagas is the IIAW Director of Agency Services.

Contact her at meggen@iiaw.com.

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JULY 2015 | 15

IIAW SUPPORTS THE USO

On June 8, USO Wisconsin hosted the annual Salute to the Troops Golf Outing at Ironwood Golf Course in Sussex. It’s a relaxing day of golf and a way to support local military personnel and their families. The Independent Insurance Agents of Wisconsin proudly supports the event and a contingent of Association members participated. From left: Matt Banaszynski, IIAW Executive VP; Robert Gudates, Philadelphia Insurance; and Marc Petersen, American Advantage-Petersen & Associates.

16 | JULY 2015

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MARKETING

THREE PROBLEMS WITH RUNNING AN AGENCY WITHOUT A MARKETING PLAN I recently presented at a National Alliance Dynamic of Personal Insurance event in Chicago. As I was on the plane home, I was thinking how few agencies seem to have a marketing plan. My portion of this program talked about the changing consumer and how insurance agents can generate a flow of prospects.

An essential element of success is a marketing plan. There are at least three problems when trying to grow an agency without a plan.

to spend about 30 to 45 minutes each week scheduling the post that I want to appear on my various social platforms.

Problem #1: Too much to do – too little time.

From an organizational standpoint, I schedule time on my calendar to work on this “project.”

That way I always complete the post for the following week.

Insurance agents work hard (at least many of them). A common question is, “How can I get everything done that you suggest I need to do?”

Part of the answer is to use available technology tools. People were surprised that I could post three status updates on five different social sites every day in just 30 minutes. That is 30 minutes once a week. I have tools I use that help me leverage my time.

Problem #2: Leaving money buried in your existing book.

Based on the best numbers I have been able to acquire, the average insurance agency has 1.4 to 1.6 policies per personal lines account.

Agency owners know they need to round out accounts, but the numbers show they do not do it.

An internal marketing plan for upgrading current coverage and rounding out accounts is a solution. It is not an easy solution. It takes work to set up and maintain. Once the initial work is done, it will pay off by building a better quality book of business.

Without a plan, every new idea is the “next best thing.” It is called the shiny object syndrome.

Every new marketing trick takes precedence.

For example, I use a service called Buffer (bufferapp.com) that allows me to schedule posts in advance. I can add posts to a queue and the service will send out the next post in line at a predetermined time each day. I can also schedule posts for a specific date and time that will go out automatically. This allows me

20 | JULY 2015

Problem #3: Wasting hours of time.

As an agency owner, you do not have time to waste. Every minute counts, especially if your

goal is to spend less time working and more time doing what you love.

An agency marketing plan is a way to leverage your time as well as your staff’s time. Without a plan, every new idea is the “next best thing.” It is called the shiny object syndrome. Every new marketing trick takes precedence.

A marketing plan is a plan for a reason. It lets you know what you want to accomplish. It tells you the steps you are going to take to achieve your goals. At the same time, it allows for flexibility and changes. Finding and using technology resources to help you implement your plan certainly can save you time.

However, the tools will not help if you do not know what you want to achieve.

A marketing plan does not have to be fancy. You do not need to take days or weeks to create one.

Just write down your goals and the three or four steps you can take to get started to make them happen.

> Steve Anderson provides information to insurance agents about how they can use technology to increase revenue and/ or reduce expenses. Go to steveanderson.com.

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JULY 2015 | 21

VIRTUAL UNIVERSITY

SOME EMPLOYERS SHORTCHANGED ON EMPLOYEE DISHONESTY COVERAGE When Business Owners Policies (BOPs) were introduced in the 1980s, they were said to be the “end all, be all” of policies. Instead of using a commercial package policy and being able to tailor coverage by adding endorsements to grant additional coverages, BOPs automatically added additional coverages and even allowed increased limits on them. However, BOP coverages are not always the same as commercial packages.

Employee dishonesty coverage is one coverage difference. In today’s marketplace, BOPs allow employee dishonesty limits of $5,000 to $500,000 or more. Agents and insureds often think employee dishonesty coverage on a BOP is the same as coverage provide by Commercial Crime policies or forms. Sadly, that is not always the case!

Case in point: an office manager stole $450,000 from a business over a four-year period. The business was insured under a BOP. Realizing that the business handled significant amounts of money, the agent increased employee dishonesty coverage on the BOP to $250,000. The insured filed a claim and was paid $250,000, the policy limit.

The good news was that the office manager still possessed approximately $150,000 in stolen cash and assets which she had purchased with the stolen money. The insureds were excited to learn this and thought they would get this money and assets to help cover their uninsured loss (the additional $200,000 the insured lost, but didn’t have insurance coverage for). The insured was shocked and upset to learn that the carrier had first right of recovery up to $250,000. Recoveries beyond that would go to the insured. Many agents know that this is NOT how Commercial Crime Coverage and Employee Theft and Forgery policies usually work.

Let’s look at this more closely.

If your insured has a need for increased employee dishonesty coverage beyond what comes on the BOP, look at the BOP you are selling.

Commercial Crime Coverage forms and Employee Theft and Forgery Policies allow for recovery as follows:

Recoveries (1) Any recoveries, whether effected before or after any payment under this insurance, whether made by us or you, shall be applied net of the expense of such recovery: (a) First, to you (meaning the insured) in satisfaction of your covered loss in excess of the amount paid under this insurance;

(b) Second, to us in satisfaction of the amounts paid in settlement of your claim; (c) Third, to you in satisfaction of any Deductible Amount; and (d) Fourth, to you in satisfaction of any loss not covered under this insurance.

This indicates that after recovery expenses are paid, the insured gets first right of recovery for the uninsured loss. Then right of recovery shifts to the insurance company, allowing it to be made whole. Thereafter, if any assets remain, right of recovery shifts back to the insured for recovery of their deductible. Finally, it says any recovery remaining after that can be used by the insured to satisfy losses that weren’t covered under this insurance policy form.

BOPs allow for recovery as follows:

Transfer Of Right Of Recovery Against Other To Us (under Common Policy Conditions) 1) Applicable to Business Property Coverage: If any person or organization to or for whom we make payment under this policy has right to recover damages from another, those rights are transferred to us to the extent of our payment.

That person or organization must do everything necessary to secure our rights and must do nothing after a loss to impair them.

Recovered Property (under Property Loss Conditions) If either you or we (insurance carrier) recover any property after the loss settlement, that party must give the other prompt notice. At your option, you may retain the property.

But then you must return to us the amount we paid you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the Limits of Insurance of Section I – Property.

Simply said, the insurance carrier gets first right of recovery until it is repaid for the loss it paid. Once the insurance carrier is made whole, the insured is in line for recovery. (However, the carrier might

> Tim Wahl is the commercial marketing manager at Gallaher Insurance Group in Mexico, Missouri. He is a regular participant in the Mid-America Insurance Conference.

The Virtual University is a Big “I” members-only resource. Many articles are based on real-life questions received by the Ask an Expert service. This service ensures that the information is current and topical. Go to www.independentagent. com/Education/VU/. You will need to login with your IIABA username and password before using the VU. The IIABA does not assume and has no responsibility for liability or damage which may result from the use of any of this information.

22 | JULY 2015

WISCONSIN INDEPENDENT AGENT

VIRTUAL UNIVERSITY not work for recovery once it is made whole.) The policy goes so far as to say under Recovered Property that if the insured recovers any property, it must give prompt notice to the carrier. The insured has the right to keep the recovered property but must pay the carrier back the amount they paid.

The rights of recovery between the Commercial Crime Form/Employee Theft and Forgery policy and the majority of BOPs are completely different! Even more troublesome is that the costs for coverage are very similar. The cost for $250,000 in employee dishonesty coverage on the BOP is similar to a stand-alone Crime Policy or Employee Theft Policy.

If your insured has a need for increased employee dishonesty coverage beyond what comes on the BOP, look at the BOP you are selling. If first right of recovery goes to the insurance carrier, your insured would be better served with a stand-alone Commercial Crime Policy or Employee Theft and Forgery Policy.

Commercial Crime policies and forms also

provide additional coverages far beyond what many BOPs provide, e.g., Computer Fraud, Funds Transfer Fraud, Money Orders and Counterfeit Money protection. Until ISO and insurance carriers change how BOPs handle

recovery in cases of employee theft, these policies will provide sub-par coverage for the insured.

COMMITMENT A PROMISE WE DON’T TAKE LIGHTLY “I enjoy helping our agents write business. When they need to turn to the E&S marketplace for their clients, I love to prove that J.M. Wilson is a great option for those hard to place opportunities.”

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800.695.0059

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Managing General Agency Since 1920 Brokerage/Professional Liability • Property & Casualty • Personal Lines • Surety • Commercial Transportation • Premium Finance

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JULY 2015 | 23

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ERRORS & OMISSIONS

CAUSE FOR ALARM? First someone sued you or your agency. Now, your E&O carrier has sent you a reservation of rights (ROR) letter. What else could go wrong?

No one is ever excited about an ROR letter, but it’s not the end of the world.

As the insurer’s way of notifying the insured there may not be coverage for some or all of a claim, the ROR letter enables you to protect your interests that might not be insured.

The carrier is generally obligated to provide you with this notice as early as possible and is often only allowed to rely on the unsubstantiated allegations made in a complaint by the plaintiff.

That means the carrier may need to raise

As the insurer’s way of notifying the insured there may not be coverage for some or all of a claim, the ROR letter enables you to protect your interests that might not be insured.

potential coverage issues that may not even turn out to be an issue as the case develops (download the IA iPad app in iTunes for an example of this).

Better yet, an ROR letter is not a disclaimer.

In other words, the carrier at that point is agreeing to provide a defense (subject to the terms of the reservation) for the lawsuit you’re facing. The letter should advise you of what arrangements the carrier is making regarding your defense counsel (requirements vary by state).

Here’s what you should do after you receive the ROR letter: D Review and make sure you understand the carrier’s position. If the carrier is not clear, feel free to request a further explanation.

D If you have additional information you believe will assist the carrier in clarifying or changing its position, provide it ASAP. D If you still disagree with the carrier’s

What to do if you receive a reservation of rights letter

position, contact your own counsel for advice. Depending on the law in your state, you may have additional rights relating to an ROR letter. After asserting any additional rights you might have under your state’s laws, cooperate with your defense counsel to get the uncovered counts of the complaint.

D Plan to protect yourself or your agency on potentially uncovered counts.

D If the reservation is based on your conduct in complying with policy provisions— such as late notice, admissions or failure to cooperate—consider changing your agency procedures so you don’t find yourself in the same position in the future.

> Charles W. Phillips is a Vice President, Claims and Liability Management for Westport Insurance Corporation, which is part of the Swiss Re Corporate Solutions group.

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WEST DES MOINES, IOWA • 800.274.3531 • WWW.IMTINS.COM

WISCONSIN INDEPENDENT AGENT

JULY 2015 | 25

COMMENTARY FROM COUNSEL

WISCONSIN SUPREME COURT ISSUES LANDMARK DECISION REGARDING NON-COMPETE AGREEMENTS With restrictive covenant legislation pending (see April 2015 Independent Agent Commentary from Counsel regarding Wisconsin’s Right to Work legislation and proposed non-compete legislation), the Wisconsin Supreme Court has also weighed in with an important decision favoring enforcement of non-competes.

On April 30, 2015, the Wisconsin Supreme Court ruled that an employer may enforce a restrictive covenant agreement for which the only consideration was the employee’s continued at-will employment as long as the agreement is otherwise reasonable. The decision in Runzheimer International, Ltd. v. David Friedlen and Corporate Reimbursement Services, Inc., was a big win for employers. In the interest of full disclosure, my firm successfully represented the victorious employer, and anyone interested in more details is welcome to contact me directly.

anything in exchange for signing the restrictive lawful consideration for a non-compete even covenant, except that he was permitted to though the employer is free to terminate the continue his at-will employment. relationship at any time thereafter. The Court then acknowledged the practical differences The circuit court agreed with the ex-employee between a new employment relationship and and his new employer and invalidated the an existing employment relationship, which restrictive covenant, ruling that an employer’s was the focus of the case. offer of continued at-will employment to support a non-compete with an existing The Supreme Court clarified existing Wisconsin employee was not sufficient consideration. The case law regarding lawful consideration to company appealed, and the Court of Appeals support a covenant not to compete entered certified the case to the Wisconsin Supreme into with a current employee. The Supreme Court.

Court rejected the ex-employee’s argument that its 2009 decision in Star Direct, Inc. v.

Case Background The Decision Dal Pra already established that continued In 2009, the employer required its at-will The Wisconsin Supreme Court reversed the employment is not sufficient consideration. The employees, including the defendant, to decision of the circuit court and determined Court emphasized that the discussion in Star sign a restrictive covenant agreement, or be that an employer could enforce a restrictive Direct regarding the a requirement for current terminated. The restrictive covenant included a covenant that was signed by an employee even employees to execute restrictive covenants non-compete provision which barred employees if the only consideration for that agreement merely reiterated existing case law that from going to work for a competitor for 24 was his or her continued at-will employment. required additional consideration to support months after leaving the company. Other Although the Court could have ended its such a covenant. However, the Star Direct activities, such as disclosing confidential analysis there, the Court continued on and decision did not address whether continued information and soliciting work from the asserted that it is of no consequence whether at-will employment satisfied the additional corporation’s customers, were also limited by the duration of continued employment is consideration requirement. the restrictive covenant. expressly stated, or whether the employment relationship, in fact, continues on for a period After establishing the absence of precedent The defendant signed the agreement and of time. Thus, continued at-will employment, regarding the issue, the Supreme Court remained with the company for another 29 without more (i.e., without additional monetary evaluated other jurisdictions’ treatment of months thereafter. He was then terminated or non-monetary benefits), is legally sufficient the issue. Currently, the states are split as and hired by a competitor. The employer filed consideration. to whether continued employment alone suit against the ex-employee and his new constitutes sufficient consideration to support employer to enforce the terms of the restrictive The Supreme Court began its analysis by a restrictive covenant. The Court pointed out covenant agreement. The ex-employee and confirming existing precedent that establishes that the states that do not find continued his new employer argued that the agreement that the promise of new employment at the employment to be sufficient consideration are was unenforceable because he did not receive beginning of an employment relationship is in the “distinct minority.” In siding with the

26 | JULY 2015

WISCONSIN INDEPENDENT AGENT

COMMENTARY FROM COUNSEL majority approach, the Court held that an employer’s promise to continue to employ an at-will employee is lawful consideration in Wisconsin. Specifically, the Court asserted that: [A]n employer’s forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant.

Additional Guidance The decision also included two important

Important Considerations Here are some takeaways from the Runzheimer decision: > Before an employer rolls out new restrictive covenants, the possible business implications of employees’ refusal to sign such covenants should be considered. An employer considering such a measure should weigh the value of such a covenant against the potential risk if an employee refuses to sign. If an employer is not prepared to fire an employee for refusing to sign a non-compete, it should

The Wisconsin Supreme Court…determined that an employer could enforce a restrictive covenant that was signed by an employee even if the only consideration for that agreement was his or her continued at-will employment. directives to employers and employees. First, under Wisconsin law, an at-will employee may bring a “wrongful discharge” claim if the discharge is contrary to “a fundamental and well-defined public policy as evidenced by existing law.” The Court made clear that an employee who is terminated for failing to sign a restrictive covenant will not have a claim for wrongful discharge on that basis. As explained by the Court, employers may respond to and reduce the risk of employees competing and taking business from the employer by requiring employees to sign reasonable restrictive covenants. Thus employers may lawfully terminate an at-will employee for refusing to sign a restrictive covenant.

Second, the Court emphasized that employers remain subject to the long-standing principles of contract formation, such as fraudulent inducement and the covenant of good faith and fair dealing. Accordingly, employers may not misrepresent their intention to continue to employ the employee. An agreement signed by an employee who is terminated by the employer shortly thereafter could constitute a breach of the covenant of good faith and fair dealing, rendering the agreement unenforceable.

WISCONSIN INDEPENDENT AGENT

consider offering additional consideration to incentivize execution. > Employers who wish to require their employees to sign a restrictive covenant as a condition of continued employment must: (1) condition continued employment on the signing of the agreement; and (2) be prepared to immediately terminate the employee if they fail to sign. To ensure that all parties understand that continued employment is conditioned upon execution of a restrictive covenant agreement, employers should clearly communicate the consequences of not signing to the employee, preferably in writing. > The decision did not address the enforceability of the substantive restrictions contained in the agreement at issue. It is important to keep in mind that Wisconsin courts maintain very high standards of reasonableness with respect to the scope and duration of restrictive covenants. Accordingly, it remains imperative that employers thoughtfully draft covenants with reasonable restrictions guided by existing case law. > Traditional contract claims still exist for employees. For example, an employee may argue that the employer never intended to

permit the employee to remain employed and required the employee to sign it knowing all along that the employee would be terminated in the near future.

Update on Pending Legislation The Wisconsin legislature is currently considering legislation that would repeal and recreate Wisconsin Statute § 103.465, the law currently governing restrictive covenant agreements in the state. If passed as currently drafted, the new statute would implement broad, sweeping changes to Wisconsin non-competition law. For example, the bill creates rebuttable presumptions relating to the reasonableness of time restriction periods placed on the restrictive covenants.

Both the Senate bill and the companion Assembly bill are pending consideration in their respective committees. It remains to be seen what effect this decision will have on the status of this legislation, if any. However, this decision has effectively addressed a key component of the new legislation which specifically provides, via statute, that continued employment is sufficient grounds upon which to condition the signing of a restrictive covenant.

Continue to watch the IIAW Spotlight and this column for updates on the status of the legislation and any judicial developments post-Runzheimer.

Conclusion The Court’s decision provides employers with the option to enter into restrictive covenant agreements with current employees who may have developed specialized skills and knowledge throughout their career with the employer to prevent those employees from rushing to a competitor when the employee is terminated. However, as noted above, a decision to utilize restrictive covenants should be thoughtfully considered and any such agreements must be carefully drafted to ensure adequate consideration is > Josh Johanningmeier given, as well as is the IIAW’s General compliance with Counsel. Call the Legal precedent regarding Services Hotline at (877) 236-1669. scope and duration.

JULY 2015 | 27

WS E N E H T N I S R E B M ME Behrens named CFO of Johnson Bank Mark Behrens has been named chief financial officer and executive vice president of Johnson Financial Group and Johnson Bank, effective July 1. Behrens succeeds Judy Sutfin, who left the company this month after four years as CFO. Behrens, a CPA, has worked at Johnson Financial Group for 30 years, most recently as president of Johnson Insurance Services. He was previously in banking and Mark Behrens corporate finance roles, and served as chief operating officer of Johnson Insurance. Behrens holds a bachelor’s in accounting from the University of Wisconsin-Whitewater and an MBA from Marquette University.

“Mark has an intimate knowledge of our company, our culture and our people,” said Thomas Bolger, president and chief executive officer of Johnson Financial Group. “He understands how far we have come, but as importantly, where we need to be positioned in the rapidly changing competitive environment of the future.”

As a result of the move, Michael Derdzinski has been named interim president of Johnson Insurance. The company has started the search for a new president.

Derdzinski has led several areas of Johnson Insurance, most recently serving as senior vice president-director of Employee Benefits Group.

“Mike will provide a bridge of consistency and continuity for both our clients and our associates to help accomplish the transition without losing our momentum,” Bolger said.

To learn more about Johnson Bank, please visit johnsonbank.com.

The Service Agency Reaches Century Mark Chances are, most people in Ellsworth and its surrounding communities have heard of The Service Agency and with good reason: it has been a local business for exactly 100 years.

According to Kris Flock and Gordy Hies, who have owned The Service Agency for the past five of those 100 years, stressing to their employees that they want to be better than anyone else at taking care of customers’ needs is the reason for the business’s longevity.

That century milestone was celebrated with Gordy Hies, left, and Kris Flock, own the an open house on Thursday, June 11. A light century-old The Service Agency. (Photo lunch, cake, cookies and refreshments were and story by Sarah Young, Pierce County served. The public was invited to attend and Herald) register for door prizes, including a Weber 300 grill and gift cards to local businesses.

28 | JULY 2015

“We want to thank everyone who has been involved, past employees, customers, business associates,” said Hies.

Employees have been collecting trinkets and memorabilia from over the years, including travel mugs, shirts, postcards and pens, that will be displayed during the open house.

History The Service Agency was founded by Mike W. Young in 1915. Hies and Flock explained that names that used the words “service,” “strong,” “secure,” or “reliant” were common back then, as they encompassed the key words and stability people should expect from their insurance company.

One of the first structures insured by The Service Agency was the Round Barn on the Pierce County Fairgrounds, when it was erected in 1920.

Young operated The Service Agency until 1945. The second owner was Gerald Peterson, who steered the ship from 1945 to 1976 or 1977, the two men estimated.

Roger Kuss, an employee of Peterson’s, took the helm after him, but passed away due to complications from diabetes in 1980.

Craig Chartier, Flock’s father-in-law, and Neil Sutherland, who owned the Pepin/Plum City Insurance Agency, bought the business then and moved their agency to Ellsworth, under the umbrella of the established Service Agency. It was called the Chartier/Sutherland Agency.

The decision was made to move to Ellsworth by the two men in hopes of attracting more business in a larger community. Sutherland sold his half to Chartier in 1988.

Flock explained that different corporate names, such as CJ Chartier Insurance Services, Chartier/Sutherland Agency or Flock, Hies & Associates, Inc. do or have done business under The Service Agency name.

“Being independent and representing so many carriers allows for multiple quotes,” Flock said. “But our service is more than just a quote. Service is our name.”

Flock, who grew up in Cashton, met Chartier’s daughter Heather while attending UW-La Crosse. They married, and he worked for Liberty Mutual in Madison for 1.5 years before moving to Woodbury, Minn. in 2001. As a member of the Army Reserves, Flock served two tours stateside at Fort McCoy and in Indiana.

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WS E N E H T N I S R E B M ME Workplaces ranking of the best places to work in southeastern Wisconsin.

Hies, a River Falls resident, grew up in Milwaukee. He has been in insurance for 40 years, 30 of which were as an underwriter in the Twin Cities. He was working at a Wells Fargo in Edina, Minn., when he met Chartier at a continuing education class. He began working at The Service Agency in 2005.

The building, located at 369 W. Main St., used to house a bowling alley in its basement, the remnants of which can still be seen, Flock said. He bought the building last year and has been in the process of remodeling, including a large storage area in back where the old pegboards from the Coast-to-Coast Hardware Store can be seen.

To learn more about The Service Agency, please visit theserviceagency.com.

Journal-Sentinel: West Bend a Top Wisconsin Workplace Privately held, Wisconsin-owned companies took top honors in the Milwaukee Journal Sentinel’s sixth annual Top

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West Bend Mutual, with 784 employees, ranked #2 overall in the Large Companies category for 2015.

The Journal Sentinel’s partner, WorkplaceDynamics, invited 1,327 employers in southeastern Wisconsin to participate this year, and ended up surveying 250 companies and more than 67,000 employees.

One West Bend employee surveyed said the following: “This place is awesome!!! The people are what make it great.

Everyone is friendly and approachable. Everyone gets face time with the managers and executives. Leadership seems to genuinely care about the associates. I came to work here from a much larger carrier in the same industry. The perks for the employees here far exceed what I was used to previously.”

To learn more about West Bend, please visit thesilverlining.com.

JULY 2015 | 29

POLLUTION EXCLUSIONS HIT THE WISCONSIN FAMILY FARM AND MAIN STREET USA

On Dec. 30, 2014, in Wilson Mutual v. Falk, the Wisconsin Supreme Court determined that the standard ISO pollution exclusion excluded losses caused by bacteria seeping into wells after a farmer fertilized his fields with manure. It’s a milestone decision that highlights just how far pollution exclusions can reach beyond landfills and industrial sites – especially important for independent insurance agents, who insure farms and small businesses.

This excerpt from the 64-page Wisconsin Supreme Court ruling reveals the logic behind bacteria contamination being a “pollutant”: “We hold that the pollution exclusion clause in Wilson Mutual’s General Farm Coverage Liability policy issued to the Falks unambiguously excludes coverage for well contamination caused by the seepage of cow manure. …we conclude that cow manure falls unambiguously within the policy’s definition of ‘pollutants’ when it enters a well.”

30 | JULY 2015

Defining a “Pollutant” Based on recent state agricultural news, manure qualifying as a “Pollutant” in an insurance policy came as a surprise to farmers — even though insurance policies sold to farmers have included pollution exclusions for decades. The Supreme Court’s ruling in the Wilson Mutual case overturned the appellate court which had overturned the trial court’s decision. The courts were trying to answer a simple question: is manure a “Pollutant” or not?

A year earlier, Wisconsin law established that manure applied to a field was a product and not a “Pollutant” under the farm liability insurance WISCONSIN INDEPENDENT AGENT

policy sold by Wilson Mutual. But ultimately it was bacteria in the manure that caused the damages and triggered the pollution exclusion.

In addition to industry standard pollution exclusions, losses associated with fungi or bacteria are separately and specifically excluded in the majority of property and liability insurance policies sold in North America. Commonly referred to in the insurance business as “mold exclusions” these exclusions also contain the words “or bacteria” after “fungi,” which also includes mold. These exclusions are effectively pollution exclusions on steroids because of their anti-concurrent causation provisions. Bacteria related losses are now excluded twice in most standard business property and liability policies sold in Wisconsin.

Qualifying bacteria contamination in the ISO standard definition of a “Pollutant” is a significant event in the insurance business because bacteria is present in all built environments and farming operations. Losses associated with bacteria and Category 3 water (water that is contaminated with bacteria) impact a wide range of businesses.

For example, bacteria usually cause food-borne illness. This means even restaurants can have basic insurance coverage issues because of pollution/ bacteria exclusions.

One positive effect of the Wilson Mutual case is that it added clarity to the need for genuine environmental insurance for a broad range of businesses in Wisconsin. For example, a plumber working on a leaky drain, a carpet cleaner dealing with the results of a toilet overflow or a hotel owner with a hot tub on the premises, all need specially modified environmental liability insurance to fill the insurance coverage gaps in their property and liability insurance policies created by exclusions for losses involving pollution/fungus/mold/bacteria and Category 3 water.

Dangerous Exceptions and Extensions Endorsements A complication for insurance agents who are helping clients manage environmental risks is navigating through the labyrinth of exceptions to pollution exclusions that are commonly marketed as coverage extensions. The Wilson Mutual farm policy, for example, included a Farm Chemicals Limited Liability coverage extension endorsement. For decades, farmers and insurance agents believed they had liability insurance for contamination under similar endorsements, which are common in farm package policies. But in the Wilson Mutual case, one Supreme Court justice commented that the Farm Chemicals Endorsement was “useless insurance” because the endorsement excluded losses for cleaning up, assessing or responding to the effects of pollutants.

Relying on limited exclusions to exclusions with “absolute

exclusion” and “total exclusion” in their commonly used names in custom and practice sets up a game of insurance roulette at best.

Although the Wilson Mutual case is drawing national attention in insurance circles, bacteria contamination as an excluded pollutant is old news in Wisconsin. In 2002, the Landshire Foods case established at the appellate court level in Wisconsin that bacteria contamination in sandwiches qualified as a “Pollutant” and fell within ISO-based pollution exclusions.

As it turns out, farmers have been rolling the dice on their insurance coverage for contamination events for decades by depending on these kinds of limited coverage endorsements to general liability insurance policies instead of genuine environmental impairment liability insurance to address pollution claims. For the farmer in the Wilson Mutual case, the dice rolled the wrong way.

Surprisingly, the Wilson Mutual case made no mention of the Landshire Foods case, which established more than a decade earlier that bacteria contamination is excluded within standard ISO pollution exclusion language.

Some insurance companies offer pollution coverage sublimits as exceptions to pollution exclusions. Although always better than total pollution exclusions, these pollution coverage extensions on the general liability insurance policies sold to farms, plumbers and other contractors are about as useful as the farm chemicals coverage extension litigated in the Wilson Mutual case.

Although the Landshire Foods case involved a product recall insurance policy that contained a pollution exclusion, ISO uses the same words to define a “Pollutant” in both property and liability policies. The definition of “Pollutant” in ISO-based insurance policies has changed very little since 1970. If something has been determined by a state court to be a pollutant in the property policy under the ISO definition of a “Pollutant,” then that same material must qualify as a pollutant in a liability insurance policy that uses the same definition of a “Pollutant.”

Anyone thinking pollution exclusions only apply to hazardous waste must pay attention to the Landshire Foods case. Contaminated sandwiches as an excluded cause of loss are about as far away from hazardous waste as you can get.

The operative word in a pollution exclusion is “contamination”. Any insurance buyer who has operations or materials that could contaminate something has an uninsured loss exposure due to the operation of pollution/fungus/mold/bacteria/category 3 water exclusions found in virtually all commercial property and liability insurance policies today.

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Pollution coverage extensions for narrowly defined environmental risks are essentially partial exclusions to pollution exclusions and should not be confused with genuine environmental liability insurance. Furthermore, pollution coverage extensions endorsements on general liability insurance policies should not be used to comply with an insurance specification for genuine environmental liability insurance. Genuine environmental insurance has an insuring agreement for pollution events and does not rely on exceptions to otherwise excluded loss for the insurance coverage grant.

CONTINUED ON NEXT PAGE

> David Dybdahl is president of American Risk Management Resources Network in Middleton, Wisconsin—a wholesale insurance brokerage, MGA, expert witness and insurance firm that specializes exclusively in environmental insurance products.

He can be reached at dybdahl@armr.net.

JULY 2015 | 31

POLLUTION EXCLUSIONS HIT THE WISCONSIN FAMILY FARM AND MAIN STREET USA CONTINUED FROM PREVIOUS PAGE

Relying on limited exclusions to exclusions with “absolute exclusion” and “total exclusion” in their commonly used names in custom and practice sets up a game of insurance roulette at best.

A Wake Up Call To Insurance Agents Why would anyone rely on a policy coverage extension that takes a state supreme court to figure out? Pollution exclusions are the most litigated words in the history of insurance. No one can predict with certainty how a pollution exclusion or an exclusion to an exclusion will apply to a loss event. There are too many potential variables in an environmental loss event to allow an accurate forecast on the effects of pollution exclusions on the coverage. The safest course to take in designing an insurance program for a customer is to assume pollution exclusions will exclude contamination events and be very happy when a claims adjuster decides to overlook the exclusions.

Wisconsin Supreme Court Fires Warning Shot For Insurance Agents In a related case entered into the record on the same day as the Wilson Mutual case, the Wisconsin Supreme Court fired a warning shot over the bow of insurance agents/brokers who leave their clients uninformed about pollution exclusions. The Preisler decision, which was coverage litigation related to septic tank waste (also determined a “Pollutant”), contains this footnote.

steps into their customer base.

Insurance agents are faced with an overwhelming choice of environmental insurance products. There are over 140 different environmental insurance policies available today to fill the coverage gaps created by pollution exclusions. Environmental Liability insurance policies do not follow any generally accepted industry coverage design standards. As a result these insurance policies can vary a great deal in what they cover and exclude. The most expensive environmental policies do not necessarily insure against the most risk.

It is very likely that there is an environmental insurance coverage option to address any legal activity. The only market barrier is the cost of that insurance. With minimum premiums in general being more than $3,000 for a $1,000,000 policy limit, many small businesses can’t afford environmental insurance.

If you are not a subject matter expert on pollution insurance you need someone on your team who is so you can avoid making flawed environmental insurance placements. For example, selling environmental insurance to a farm without specific coverage for odor, bacteria or nitrates as specifically defined pollutants would be a fundamental mistake because that is where the major loss exposure is on a farm. Off the shelf environmental insurance policies do not clearly cover these contaminates at all.

“One could wonder what conversation transpired between the insurance agent and the Kuettels yielding insurance policies that do not cover harm caused in the course of their chosen business.

However, the actions of the insurers and their agents are not before us.”

Reading this footnote in context it appears the Wisconsin Supreme Court is telling insurance agents to get their act together in advising their clients that pollution exclusions exclude pollution losses and to offer insurance that covers the customer for what they do for a living.

To minimize your potential malpractice loss exposure for unintentionally uninsured environmental losses, do the following: 1. Ask your clients it they have any loss exposure to contamination events. That can be dirt in a stream, manure in ground water or a stream, serving contaminated food in a restaurant or having a hot tub in a hotel. The question should not be limited to hazardous waste.

2. Advise your customer on the effects of pollution/fungi/mold/ bacteria/Category 3 water exclusions on both their property and liability insurance policies.

3. Offer genuine environmental insurance to fill the coverage gaps for contamination related losses and recommend the purchase of this insurance in your proposal. It is important to memorialize that buy recommendation in writing along with offering a summary of few sample identified environmental loss exposures and the effects of the various pollution exclusions in the customer’s insurance program.

Most insurance agents and brokers will need expert advice to implement these three errors and omissions loss prevention

32 | JULY 2015

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McDonald’s new human Hamburglar hasn’t boosted sales in the United States but he’s working his masked magic in London, Paris, Berlin and throughout Europe. In May, domestic sales were down 2.2% but European health nuts gobbled enough Royales with Cheese to increase sales 2.3%.

To win back customers in this country, the company is trying out a limitedtime menu and cheaper food options aimed at people who are increasingly opting for healthier, fresher food. The chain is also paring down drive-thru menus to improve speed and is expanding its all-day breakfast test. CEO Steve Easterbrook said that the restaurant is also “recommitting to hotter, tastier food,” for example by toasting the buns five seconds longer, which will make them 15 degrees warmer.

Source: CNBC

WISCONSIN’S ORIGINS

On July 4, 1836, in Mineral Point, Col. Henry Dodge took the oath of office to become the first governor of the newly created Territory of Wisconsin. The Territory, previously attached to Michigan, encompassed what is now the states of Wisconsin, Iowa, Minnesota and portions of North and South Dakota.

The first census was taken in August 1836 and found only 11,683 non-Indian residents between Lake Michigan and the Dakotas. By 1846, the population exploded to 155, 277. In a prescient move, James Doty traveled to the land office in Green Bay in April 1836 and purchased (with a partner) 1,000 acres where downtown Madison now stands. He soon found a third partner, who put in another 360 acres, and the trio formed a corporation with 24 shares worth $100 each.

Source: Wisconsinhistory.org

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