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Serving: New York, New Jersey, Connecticut, Eastern Pennsylvania and Washington D.C.
D.C. or Not D.C.? That is the Question State Regulatory System Defended by PCI  as House Hears Viewpoints Vol. 128 No. 9 | May 8, 2017
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Contents
May 8, 2017 | Volume 128 Number 9
24
In the Associations: PIACT Offers Testimony in Support of TNC Legislation
26
Courtside: Storm in Progress Defense Applies Even if Temperatures Warmed Up at Time of Accident Lawrence Rograk
28
On My Radar: Qui Tam Action Takes the Profit Out of Fraud Barry Zalma
30
Looking Back: February, 1992
33
Classifieds
34
Cyber News: Mitigating Cyber Risks for the Insurance Industry with the Right Security Controls Chris Moschovitis
16 D.C. or Not D.C.? That is the Question. [FEATURES] 4
Foreword: Winners Circle … and Then Some. Steve Acunto, Publisher
6
On the Level: Independence Requires Expertise Jamie Deapo
8
Social Notebook: Catching Fire with Your Content Chris Paradiso
10
In the Associations: IIABNY Heads off Draconian Penalty Increases in State Budget
22
Guest Opinion: A Simple American Solution for Today’s Government-Caused Health Care Crisis Dr. William Scott Magill
[A D F E ATUR E S ] 14
MSO: Home Appliances — Helps or Hazards?
15
IIABNY: CyberSecurity Regulations
info@insurance-advocate.com www.insurance-advocate.com
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INSURANCE ADVOCATE / May 8, 2017 3
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[ FOREWORD ]
STEVE ACUNTO
Winners’ Circle … and Then Some
S
uWhen Always Dreaming crossed the finish line first to win the Kentucky Derby convincingly, he carried more than a talented jockey with him. The horse’s owners, joined together as Brooklyn Boys with a formidable stable of race horses, are two wealthy men well known in New York: Vincent Viola, recently offered the post of Secretary of the Army, and Anthony Bonomo, an insurance leader who has appeared in these pages many times as head of PRI, insurer of 13,000 New York doctors and scores of healthcare facilities. While both, evidently, are risk takers of a high magnitude, both heads of accomplished families, both fond of their roots, and both philanthropists, the important link, to me, is that wealth and good fortune have not compromised either man. This is not about two ItalianAmericans and their Brooklyn roots, working class families, Sunday dinners en famille, or any of the other “local boy makes good” stories—it is that, but more. The ethnic clichés are easy. “Giving back” to one’s community is easy, especially for men of means, but what is not easy is doing it with real affection and without that pasted smile condescension that marks so many “returning” sons. For years this writer has watched Anthony Bonomo in action. He helps everyone—generous, no strings, no worship needed, no “ask back” and no secondary agenda. Each year he and his brother Carl have supported the largest Italian Festival in Brooklyn , maybe New York, the famous Giglio Festival, and Anthony has been there actually assisting in the carrying of the giglio and helping the local parish materially and through that reliable spiritual bond that is ever ineffable. Anthony has supported local colleges, universities, creative individuals writing plays, films, and books and, all the while, he has never asked for his name to be plastered on anything or exalted. Viola is the same way—service first, good before self. As head of the company that has operated PRI for better than 25 years, Bonomo’s sometimes-stressful gamble on one of the most difficult lines of insurance has paid off for the insureds—providing the one real alternative market for medical practice in New York, for the staff of 300-plus employed in Roslyn, and for the risk taker himself. It is a formula that has worked, despite an often insane trial bar, usually unbridled awards from activist judges, often unappreciative regulators, a legislature that never seems to catch up with the realities of the marketplace, and from some unduly well-publicized predators who have taken advantage of a generous friend’s willingness to offer help to some who proved quite mal-intending. It is the mark of a good man that he never suspects evil in others, never dreams that a friend would saddle him with the weight of deceit. It is the mark of one who is always dreaming of a better condition for those he cherishes and for what he cherishes. And so in this year’s Kentucky Derby two good men won deservedly. As Insurance Advocate and as advocates ourselves, we cannot help but take pride in Anthony Bonomo’s win in particular, especially after the uphill, muddy track race he has run in medical malpractice insurance, and in the defense of a company and a market that will never really repay him fully for the stamina and determination he has shown throughout the race. When he was in the Winner’s Circle that Saturday afternoon, he had his customary self-possession and actually apologized on national TV to his grandniece for missing her First Communion party back on Long Island. That was no staged anything; that is who he is and why he has run his race so admirably.[IA] VOLUME 123, NUMBER 18 / October 29, 2012
New York • New Jersey • Connecticut • Pennsylvania Washington D.C.
A CINN Group, Inc. Publication
Since 1889
Pictured: Anthony J. Bonomo, Esq., CEO, Administrators for the Professions, Inc. (AFP), Board Member of PRI
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VOLUME 128 NUMBER 9 MAY 8, 2017
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Director of Operations and Creative Services Gina Marie Balog 914-966-3180, x113 g@cinn.com EDITORIAL ASSISTANT COPYEDITOR & PROOFREADER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Media, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 613-1595 www.cinn.com | info@cinn.com President and CEO Steve Acunto
CINN MEDIA, INC.
INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 22 Bedford Road, Greenwich, CT 06831. Periodical postage paid at Greenwich, CT and additional mailing offices. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $135.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2017. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.
For high-quality article reprints (minimum of 100), including digital rights, contact Gina Marie Balog at g@cinn.com or call 914-966-3180, x113
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[ O N T H E L E VE L ]
JAMIE DEAPO
Independence Requires Expertise uTechnology...it’s invaded nearly every aspect of our lives today. It’s almost impossible to function without it. Did anyone ever dream the time would come where you would actually take time off to avoid using technology? There is no business more affected by technology than insurance. It’s changing the way we operate our business. It’s creating new risks and exposures. It’s changing how we market and sell coverage. The ability to gather, analyze and use data has caused some insurance providers to believe they can offer insurance protection without asking the applicant any underwriting questions. It is truly a game changer. Any agency that doesn’t have the knowledge and resources to understand and apply technology in every aspect of their operation will be unable to remain viable and grow going forward. Don’t misunderstand me—I still believe the real value of an agency lies in the insurance knowledge, expertise and commitment of its people. The problem is you can’t attract and retain new clients, as well as effectively and efficiently retain and service all clients, without the significant use of technology in every facet of your business. I think the day has come where an agency of any size is going to have to employ a dedicated person or persons in charge of analyzing and implementing various forms of technology to assure agency effectiveness. Currently many agencies have someone who holds primary responsibility for the agency management system, however that is just one piece of the overall needs of today’s successful independent agency. Social media, digital marketing, SEO, mobile technology, cyber security, agency systems support, disaster preparedness, customer contact and relationship building, electronic claims handling, live chat, remote employees, virtual employees, data analysis, artificial intelligence and chatbots are just some of the technological features being used in agencies today. Researching, planning and successfully implementing these various areas takes the
I think the day has come where an agency of any size is going to have to employ a dedicated person or persons in charge of analyzing and implementing various forms of technology to assure agency effectiveness.
skills of someone with significant background in technology. Even if an agency intends to outsource many of these items, it needs someone on staff who understands today’s technology and can evaluate and implement the most cost effective option. With today’s commission structure and the cost of ever-improving hardware and software, the last thing any agency wants to deal with is an additional staff position dedicated to guiding the agency in the effective use of technology. Unfortunately, I don’t see how any agency can expect to grow and flourish today and in the future without having such a person. are partially contributing to the increased mergers and acquisitions we are seeing as agencies search for ways to meet the increased costs and changing needs of operation. If the technology position is filled with a skilled and effective person, their work and decisions should have a positive impact on the revenue of the agency. Excelling in social media, digital marketing, SEO and mobile technology will help the agency market itself by attracting new clients as well as retaining existing clients. Cyber security, agency systems support, customer contact and relationship building, and electronic claims handling make the customer delivery system more effective and efficient—cutting costs and improving customer satisfaction. Data analysis allows for a better understanding of clients that can lead to more effective marketing and handling of their needs.
Jamie Deapo is AVP of Membership & Member Programs for IIABNY and is an approved CE instructor in New York. Prior to being with IIABNY, he was an independent agent in the Syracuse area for 15 years. Jamie started his career in 1972 working for insurance carriers, and he has held various underwriting and marketing positions with several national as well as regional companies. He is a past president of the Independent Insurance Agents of Central New York and served on the board of directors of IIABNY.
With today’s commission structure and the cost of ever-improving hardware and software, the last thing any agency wants to deal with is an additional staff position dedicated to guiding the agency in the effective use of technology.
Live chat, remote employees, virtual employees and chatbots cut costs and improve service for those clients looking for 24/7 service capabilities. So what’s the point? The point is that with the significant invasion of technology into the independent agency system, most agencies have a need for a dedicated person who understands today’s technology and can make sure the agency is using it effectively. They need to be able to explore the options, selecting the best one for the agency based on need and cost. Agencies that don’t integrate such a position will struggle and eventually fall behind in effectiveness and revenue. To stay relevant and effective an agency must have the leadership necessary to keep them at the forefront of where our business is going.[IA]
6 May 8, 2017 / INSURANCE ADVOCATE
Anthon
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[ T H E SO C I A L N OT E B O OK ]
C H R I S PA R A D I S O
Catching Fire with Your Content uWhat exactly do we mean by “catching fire” in terms of your agency’s digital content marketing? Well, simply put, to get more visibility in the social world, your agency is going to need shares, and a lot of them. So the million-dollar question is this: how can you get more people to share more of your insurance agency’s content? Well, first and foremost, I’m going to tell you that social media is the number one tool when it comes to getting shares in the digital space, as we reviewed on our blog in our article on social media vs. email marketing. Before we get into how you can get your content to “catch fire” with more shares on social media, first let’s observe why this should be a key factor to every agency’s digital marketing strategy. First and foremost, more shares mean more traction online, and we are always looking to be bigger and better. Each time someone clicks the “share” button on your content, you have the ability to reach an entire new network of people. Even if you aren’t directly connected with that individual’s friends or network, they can still see your content and your posts through the power of shares. Overall, this means more visibility for your insurance agency online. That’s critical when it comes to things like branding and the customer experience, and with more shares, you can capitalize on both. Not to mention we are in a business of renewals, and social media is a great way to nurture your existing customer and client relationships. They say that “great minds think alike,” and if people see their friends and family sharing your content, they’ll be more apt to stick with you for the long haul as well. Let’s look at the three key psychological triggers that will make your audience more apt to hit the share button, and how your agency can capitalize on this strategy. 1. People Like to Interact in Groups When it comes to social media, everyone wants to be part of the “in” crowd, or get a sense that they are well connected 8 May 8, 2017 / INSURANCE ADVOCATE
People are even more apt to share content that they haven’t already seen in the news feed from one of their other friends, because that has the mental stimulation of “look what I found first,” or “look what I know about before you do.”
with their network. By nature, people would rather be part of a group of likeminded individuals than to take our journeys alone, and there’s no questioning it. The thing is that digital avenues have pushed the envelope when it comes to building connections. Previously, we only really became social when we went out, such as going to work, church, a restaurant, a party, and so on. Now, with social media, we can connect from anywhere and in real time. The way we connect has changed slightly, because now it’s through a like, comment, or share. Some people even interact with posts for the sole purpose of being more social. For that reason, we can’t think directly about how we can earn a like or share, but instead focus on how we can help people connect with their friends and family. Importantly, if someone were to share content with their friends and family and tag them, then you could potentially have a warm lead when it comes time for that individual’s renewals. So how exactly can we focus our content on helping our audiences’ friends and families? Well, the answer lies within the next two psychological triggers. 2. People Like to Make Themselves Look Good This shouldn’t be news to anyone, but to be frank, people like to make themselves
Christopher Paradiso, CPIA , is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.
look good. This is one of the more common reasons why people like to share content online. Jonah Berger, the author of Contagious: Why Things Catch On, wrote that “Before people share a piece of content, they evaluate its social currency. The better it makes them look, the more likely they’ll be to pass it on,” and he’s absolutely right. One thing that people often overlook is that simply discovering content doesn’t make you awesome, but we are competitive, and that is how it makes us feel in the moment. People are even more apt to share content that they haven’t already seen in the news feed from one of their other friends, because that has the mental stimulation of “look what I found first,” or “look what I know about before you do.” Either way, they are sharing something that they found to be interesting. In fact, Buffer cited in one study that 61% of shares online come from content that people find helpful and interesting, even ahead of content that folks find funny CONTINUED ON PAGE 12
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American Transit Insurance Company The leading for-hire commercial auto liability carrier in New York State with over 40 years of experience insuring Taxis, Livery, Black Cars, Fleets, and Transportation Network Companies.
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[ I N T H E A S S OC I AT I ON S ]
IIABNY Heads Off Draconian Penalty Increases in State Budget Budget agreement also includes IIABNY-supported ride-sharing measures uDewitt, New York—Thanks to the efforts of the Independent Insurance Agents & Brokers of New York (IIABNY), insurance producers have been spared drastically larger penalties for violating the state’s insurance law. The state budget the New York Legislature adopted over the weekend dropped the governor’s proposal for increased penalties. Current law permits the New York State Department of Financial Services (DFS) to fine violators up to $1,000 per offense. Gov. Andrew Cuomo’s proposed budget would have allowed DFS to assess fines up to the greater of: • $10,000 per offense • Double the aggregate damages attributable to the violation • Double the aggregate economic gain the individual made from the violation IIABNY lobbied extensively over the past couple months against the measure, calling it unwarranted. It told the Legislature that an agency that forgets to renew one of its four licenses may face a $10,000 fine for each policy it sells while the license is lapsed. Fines of this size could put a small agency out of business because of an oversight. Insurance agencies are busy counseling clients and helping them obtain the right coverage at a reasonable cost. Disproportionate penalties like these hurt consumers and business owners by reducing the number of trusted advisors they may have. IIABNY Interim President and CEO Lisa K. Lounsbury, CAE, AAI, AIS said, “We are very pleased that the State Assembly and Senate rejected these onerous proposals. Driving well-meaning insurance agencies out of business over simple mistakes would do no favors for New York’s small businesses and households, who rely on their advice. The Legislature’s decision requires those who break the law to pay penalties that are proportionate to the offense, but no more than that.” 10 May 8, 2017 / INSURANCE ADVOCATE
IIABNY has been involved in discussions to allow ride-sharing, also known as transportation network companies (TNCs), to operate in areas outside of New York City. The group’s primary concern has been potential ambiguities or gaps in the insurance covering TNC drivers and their passengers. The final budget does not include any increase or change in the current penalties under the Insurance Law. It also leaves out other proposals IIABNY opposed. These included expanded DFS authority to sue violators of the insurance law and authority to ban people from the insurance business for life. The budget also includes approval of ride-sharing services in upstate New York. IIABNY has been involved in discussions to allow ride-sharing, also known as transportation network companies (TNCs), to operate in areas outside of New York City. The group’s primary concern has been potential ambiguities or gaps in the insurance covering TNC drivers and their passengers. The budget agreement sets minimum amounts of liability insurance that TNC drivers must carry while they are available to give rides, and higher amounts when they have passengers. They can obtain the insurance themselves or rely on coverage the TNC provides. The TNC must also provide $1.25 million in Supplementary Uninsured/Underinsured Motorists Coverage, which covers drivers’ and passen-
gers’ bodily injuries caused by other drivers with no or insufficient liability insurance. The budget agreement makes it clear that a personal automobile insurance policy does not have to cover a driver’s TNC activities. TNCs must inform drivers about the insurance coverages they provide and that the driver’s own personal insurance may not provide any coverage for the driver’s TNC activities. The Independent Insurance Agents & Brokers of New York, Inc. has represented the common business interests of independent insurance professionals since 1882. More than 1,750 agencies and their 13,000 plus employees currently rely on the DeWitt, New York-based not-for-profit trade association for legislative advocacy, continuing education and other means of industry support. In addition, most IIABNY members proudly identify themselves as Trusted Choice® agents and brokers, a national consumer brand uniting more than 21,000 independent agencies across the United States.[IA]
Looking to buy, sell or hire, merge, sublesse, or simply promote an agency or product?
Post a classified ad the old-fashioned way and reach the audience you are looking to reach.
EFFECTIVE IN MORE WAYS THAN ONE! For more information, call Gina Marie Balog at 914.966.3180, x113
gmb@cinn.com www.insurance-advocate.com
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Stay in the know on Paid Family Leave! After Paid Family Leave (PFL) was announced in 2016, we made a commitment to you: to ensure a successful implementation of PFL for everyone involved — from brokers to policyholders and claimants. With that in mind, we are now launching your go-to-resource for all PFL related information. Check back often! You’ll find updated information throughout the year as regulations are issued and more details unfold.
Visit www.newyorkpfl.com to keep yourself updated.
This material is for producer (agent and broker) use only. It is not intended for the general public. ShelterPoint is a registered Service Mark. All images licensed through iStockphoto.
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[ T H E S O C I A L N OT E B O OK ] CONTINUED FROM PAGE 8
or important. If your content is interesting or helpful, then people think that sharing it will make them look good, and that’s critical—which actually leads us to our last psychological trigger. 3. People Naturally Want to Support or Help Others Naturally, it feels great to help others, or watch them succeed. That is why it makes so much sense that people are most prone to sharing content from which they feel their network will benefit. This also works in multiple ways: If they feel as though they are helping you by sharing your content, such as sharing content about a cause that you support, then they will be more likely to get behind it with you. This is especially important to your visibility on social media, because if there are causes that your agency cares about, then you should certainly post about them. In the screenshot below, you can see our agency’s number one most-shared piece of content on Facebook, which is supporting our troops, a cause we care dearly about. We saw many shares on social media due to the nature of this content, and because this was a cause we care deeply about, our audience wanted to support us.
12 May 8, 2017 / INSURANCE ADVOCATE
Be sure to focus on producing content that will either make someone feel like they looked good sharing it, that they helped someone, or simply provide a place for people with common interests to collaborate, and I guarantee that you will see more shares in the social world.
This shared content was also great for our agency, because it spoke to our agency’s brand as well. By sharing this post, we were able to reach a wide audience while supporting our brand, and that is what social media is all about. When it comes to getting more shares, you just have to stand for something. All too often, insurance agencies are trying not to take stances, or just post simply about insurance products or services. Frankly, that will not get you much traction. A wise man, Winston Churchill, once said, “You have enemies?
Good. That means you stood up for something sometime in your life.” All in all, it is critical for your agency to focus on shares when it comes to your social media strategy. Your content will have more visibility, engagement, it will help strengthen your brand, and overall you’ll see more client/customer retention when it comes time for renewals. Be sure to focus on producing content that will either make someone feel like they looked good sharing it, that they helped someone, or simply provide a place for people with common interests to collaborate, and I guarantee that you will see more shares in the social world. To all agents and brokers out there, I wish you the very best with your social media strategy as we move forward in 2017.[IA]
Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889
www.insurance-advocate.com
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ADVERTORIAL
Home Appliances — Helps or Hazards? HOME APPLIANCES have drastically changed how people live over the last century. They are great time savers and convenience items, as well as providing entertainment. However, these gadgets and products that are meant to make life easier are also responsible for millions of dollars in insured and uninsured losses each year. The Consumer Products Safety Commission (CPSC) estimates that major appliances are involved in over 150,000 fires in residences per year, causing over $547 million in damage, 150 deaths and 3,670 injuries. Helping clients understand the potential drawbacks and hazards of home appliances is another sign of the true insurance professional. Contrary to what might be assumed, cooking and heating equipment is not the only source of these fires. Any type of appliance, including clothes washers/dryers, refrigerators, dishwashers, and air conditioners, can be involved. For example, in the kitchen, fires caused by non-cooking appliances—mainly refrigerators, freezers, separate ice makers and dishwashers— resulted in $75 million in direct property damage from 2006-2010. In addition, approximately 234 fires per year are confined to the cooking vessel, incinerator or trash bin, and therefore not included in the home structure fire statistics (www.nfpa.org). In 2010, clothes dryers and washing machines were the cause of an estimated 16,800 structure fires, resulting in $236 million in damage to property. This represents 4.5% of all reported home structure fires, 1.9% of associated civilian deaths, 2.8% of associated civilian injuries, and 3.1% of associated direct property damage (www.nfpa.org). More complex technology means more things that can go wrong. Think of a blender. No longer do they have only an on-off switch. Some have over a dozen settings including programming capabilities and microprocessors. Coffeepots have timers to allow them to have a pot ready first thing in the morning. Clothes dryers are implicated in 2,900 home fires each year, resulting in 5 deaths, 14 May 8, 2017 / INSURANCE ADVOCATE
100 injuries and $35 million in damage. The most common reason for clothes dryer fires is maintenance—failure to clean them. Outside vents should be covered to prevent dirt, rain and snow from entering, as well as nest building. Clean lint filters before and after use, and also check the back of the dryer where lint can also accumulate. Be sure the connections are not crushed when dryer is pushed against the wall. Rigid metal dryer ducts are preferable to ones that can sag and allow lint to collect. Care should be taken when moving the dryer to avoid crushing the duct. Maintenance of ducts is also important to avoid carbon monoxide poisoning, a deadly combustion byproduct. The Centers for Disease Control (CDC) recommends that all gas appliances should be inspected on an annual basis by professionals to ensure that all connections are intact, and that cords are not frayed or worn. Microwave ovens have been alleged to turn on by themselves and cause fires so often that a class action suit was brought against one manufacturer in 2009. Toasters and ranges can also self-start. Toasters should be checked regularly and crumbs removed. Never leave such appliances unattended while they are operating. Unplug appliances when traveling away from home. Although it might seem like a great idea to run washers, dryers and dish-
washers while nobody is home, this is not recommended. Over 15 million appliances were recalled from 2007-2011. From 2007-2009, nearly seven million dishwashers alone, from several manufacturers, were recalled due to fire hazard. Causes of the fires included wiring and improper maintenance or product design. The CPSC website (www.cpsc.org) lists over 4,500 recalled appliances. In addition to the CPSC, there are companies that offer a notification service to consumers if any of their registered appliances are recalled. Some home inspection companies offer a check for recalled appliances as part of their service. At the minimum, consumers should register their purchases with the manufacturer so they may be notified of any recalls. Appliances make our lives easier, but they are not without their dangers. Helping clients understand and avoid potential losses is another value-added service of the professional insurance agent.
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D.C. or Not D.C.? That is the Question State Regulatory System Defended by PCI as House Hears Viewpoints uThe insurance industry again has its periodic task at hand, i.e., the defense of state regulation. The House seems to be getting the point, having just held a hearing entitled “A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs,” which itself earned the praise of at least one major trade association, the Property Casualty Insurers Association of America (PCI). PCI is composed of nearly 1,000 member companies, representing a broad cross-section of insurers. PCI members write more than $183 billion in annual premiums, 35 percent of the nation’s property casualty insurance, 42 percent of the U.S. automobile insurance market, 27 percent of the homeowners’ market, 32 percent of the commercial property and liability market, and 34 percent of the private workers’ compensation market. “PCI strongly supports the Financial CHOICE Act, which would benefit consumers, uphold proven effective statebased insurance regulation, strengthen the financial marketplace, and at the same time reduce federal regulatory overreach,” said Nat Wienecke, senior vice president, federal government relations at PCI. “Dodd-Frank has created extra layers of federal banking-related regulation that have spilled over into insurance, which often duplicate or undermine consumer-focused state regulation,” continued Wienecke. “The Financial CHOICE Act includes several provisions that could reduce unproductive regulatory duplication and overreach and thereby support more financial 16 May 8, 2017 / INSURANCE ADVOCATE
“PCI strongly supports the Financial CHOICE Act, which would benefit consumers, uphold proven effective state-based insurance regulation, strengthen the financial marketplace, and at the same time reduce federal regulatory overreach.”
activity and economic growth. At the same time, however, it assures the continued viability of our proven effective state-based system of insurance regulation.” “If enacted, the legislation will better focus regulatory efforts, better protect state-based consumer protections and better support a competitive U.S. insurance market. PCI applauds Chairman Hensarling and the House Financial Services Committee for their leadership,” concluded Wienecke. PCI’s statement on the subject, reproduced on the following pages, is worth a read and possible modification/adoption by other groups—it is a clear statement of the industry’s generally-held view.
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Statement for the Record Property Casualty Insurers Association of America (PCI) Hearing on the Financial CHOICE Act House Committee on Financial Services April 26, 2017 The Property Casualty Insurers Association of America (PCI) strongly supports the Financial CHOICE Act, which would benefit consumers, uphold proven effective state-based insurance regulation, strengthen the financial marketplace, and at the same time reduce Federal regulatory overreach. PCI is composed of 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $200 billion in annual premium in the U.S. and around the world, including 35 percent of the nation’s property casualty insurance. Member companies write 42 percent of the U.S. automobile insurance market, 27 percent of the homeowners’ market, 33 percent of the commercial property and liability market, and 34 percent of the private workers’ compensation market. Regulatory compliance costs for insurers have been skyrocketing, increasing 19% over the last two years.1 Over 13,000 pages of new Dodd-Frank Act regulations have been imposed since 2009, and the burden has been especially taxing for small insurers who have to reallocate three times as much of their revenue on compliance costs as large financial companies.2 While insurance has been successfully regulated at the state level for over 160 years, Dodd-Frank has created extra layers of federal banking related regulation that have spilled over into insurance that often duplicate or undermine consumer-focused state regulation. PCI greatly appreciates the Committee’s work in the last Congress to enact the Policyholder Protection Act, which reaffirmed that state regulators have primary authority to resolve failing insurers and to protect insurance consumers where the insurer is affiliated with a bank or thrift that is subject to federal regulation. Many community financial institutions are being hit particularly hard. For example, one PCI member insurer has a very small community depository institution with only $30.5 million in assets—less than 0.2 percent of the assets of the holding company. Since the beginning of its regulation under the Federal Reserve, this company has had significantly increased administrative burdens on their compliance and regulatory staff. In fact, twentyfive percent of its regulatory and compliance staff time is now spent communicating with the Federal Reserve on regulation of an entity that comprises only 0.2 percent of the company’s assets. Federal Reserve Board Governor Jerome Powell just last week acknowledged that “In too many cases new regulation has been inappropriately applied to small and medium-sized institutions. We need to go back and broadly raise thresholds of applicability and look for other ways to reduce burdens on smaller firms.”3 Board Chairman Janet Yellen similarly stated in testimony for the Financial Services Committee that “rules and supervisory
The Financial CHOICE Act includes several provisions that could reduce unproductive regulatory duplication and overreach and thereby support more financial activity and economic growth. approaches should be tailored to different types of institutions.”4 Despite the increasing recognition of the suffocating regulatory burden on particularly smaller insurers and other community financial institutions, relief is unlikely unless and until Congress can clarify its regulatory priorities and eliminate Fed supervision of insurers, or at a minimum make that supervision more proportional to the risk. The Financial CHOICE Act includes several provisions that could reduce unproductive regulatory duplication and overreach and thereby support more financial activity and economic growth. At the same time, however, it assures the continued viability of our proven effective state-based insurance regulation. In particular, the redesign of the Federal Insurance Office (FIO) would be a helpful start in refocusing federal involvement in insurance to become more supportive of existing state insurance regulation by requiring it to advocate on behalf of the proven effective U.S. insurance system against harmful international threats that would actually undermine our consumer protection and our competitive markets. PCI suggests several additional amendments to this portion of the CHOICE Act to further support state regulatory efforts to protect consumers and strengthen private competitive markets. PCI also strongly supports changes to the Financial Stability Oversight Council’s (FSOC) authority that recognize the consensus of insurance regulators and experts that traditional insurance is not systemically risky, and state-regulated insurers should not be forced under an additional layer of banking regulation merely because they are large and well-diversified. PCI would suggest further amendments to the ongoing bank-like supervision of community insurers by the Federal Reserve Board to require more proportionality and risk-based supervision, with deference to insurance functional regulators. PCI strongly supports provisions of the CHOICE Act that: (1) subject the Financial Stability Oversight Council’s (FSOC) funding to the appropriations process, and reforming FSOC’s CONTINUED ON PAGE 18
1 Property-Casualty Insurance Association of America and Aon Hewitt Ward Group, Corporate and Regulatory Compliance Practices, 2016, p. 8. 2 Id. 3 Jerome Powell, Governor, Federal Reserve Board, Brief Remarks before the Global Finance Forum, Washington, DC, April 20, 2017. 4 Statement by Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System before the Committee on Financial Services, U.S. House of Representatives, September 28, 2016.
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authority to designate firms as systemically important financial institutions; (2) requiring greater transparency in the federal agencies participating in international insurance standard-setting negotiations; and (3) clarifying priorities of the Federal Insurance Office (FIO) and requiring it to consult with state regulators (as part of the restructuring of FIO and FSOC’s Independent Member with Insurance Expertise). The following will summarize several key amendments to the CHOICE Act, which we believe would improve an already excellent bill. Redefine and Limit the Role of the Federal Insurance Office The CHOICE Act already limits the role of FIO and merges it with the Office of the Independent Member with Insurance Expertise. However, PCI recommends that FIO’s role be further limited to international functions only and that its domestic functions be eliminated entirely. The primary reason Congress created FIO was to work with the states to provide a stable and consistent voice for the U.S. to support our regulatory system in international insurance discussions. That is still an appropriate role for FIO (or a successor entity). But additional domestic mandates that were not included in initial FIO proposals were subsequently layered on that can undermine, conflict with, or duplicate core activities of state insurance regulators. For example, state insurance departments have conducted numerous studies on auto insurance rates. Every state has extensive laws and regulations governing auto insurance underwriting accompanied by rate approval authority and antidiscrimination laws. The auto insurance marketplace is one of the most competitive commercial sectors with almost no availability problems. However, even though the states are continuing to vigorously monitor the marketplace and issue periodic data calls, FIO duplicated state efforts, imposed its own studies, triggered a series of data calls in addition to what states already were requesting, and created a conflicting Federal definition of affordability. FIO issued several other reports that gratuitously criticized state regulation, ignoring such metrics and the large amount of competition, the extensive consumer protection laws, and the few consumer complaints. FIO has also initiated similar dueling data calls with the states on terrorism insurance, despite specific statutory direction to coordinate data collection through the state regulators. FIO is not a regulator, but its subpoena authority to compel responses to data calls implies regulatory authority that is not in FIO’s mandate and that is appropriately the purview of state regulators and other law enforcement entities. State insurance commissioners rely on 11,300 staff to protect insurance consumers and regulate insurance market activities and should not be undermined by a Treasury office with fewer than a dozen.5 The states collectively spend in excess of $1 billion regulating insurers6 and the National Association of Insurance Commissioners has a 2017 budget of $101.9 million and a staff of roughly 490 on top of that.7 In addition to refocusing FIO (or a successor entity) on international activities, Title V of Dodd-Frank should further be
FIO issued several other reports that gratuitously criticized state regulation, ignoring such metrics and the large amount of competition… amended to: (1) eliminate FIO’s authority to issue duplicative data calls and its unprecedented subpoena authority; (2) limit FIO’s headcount to its international staff; and (3) require FIO to consult with and represent the views of the state insurance regulatory community in international negotiations and discussions, and provide greater congressional oversight of and transparency on international insurance standards-setting processes. Require Targeted and Proportional Regulation of Insurance Companies Subject to Federal Reserve Board Supervision The Board of Governors of the Federal Reserve System (Federal Reserve) was granted jurisdiction over insurance companies that are affiliated with thrift institutions. Only 14 remain, of which many only have tiny depository institutions. Nonetheless, the Federal Reserve supervision is quite onerous. Legislation is needed to provide for more tailored and proportional supervision of the depository institution—and not the business of insurance, which has robust holding company supervision run by state-led supervisory colleges. As noted above, current Federal Reserve regulation is often not proportional and results in tremendous costs to the affected insurer. Consumer costs are unnecessarily increased as a result of companies having to expend and often waste significant resources for inside and external counsel to interpret and respond to requests for information or interpretation of rules, some of which are duplicative to their current OCC and state regulatory requirements. The CHOICE Act should therefore explicitly require more targeted and proportional Federal Reserve regulation of insurance companies only to the extent necessary to regulate the affiliated depository institution. This would be entirely consistent with recent comments from high-level Federal Reserve officials that supervision should be appropriately tailored. PCI will be pleased to work with Committee and its staff on suggested legislative language. Restrict Federal Reserve Ability to Conduct Examinations of Insurers Controlled by Banks or Thrifts The Federal Reserve Board should not be permitted to conduct examinations of, or require reports from, any insurance company that is controlled by a bank or savings and loan holding company or of a company (and its subsidiaries) that simply holds the shares of the insurance companies. Under current law, the Federal Reserve may obtain information about the financial condition and activities of insurance companies that are subsidiaries of bank and savings and loan holding companies from
5 National Association of Insurance Commissioners, Insurance Department Resources Report, 2016. 6 Id. 7 NAIC Budget, 2017.
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state insurance authorities, who have complete authority to examine insurance companies and obtain reports regarding their activities. The Federal Reserve can avoid duplicating state efforts by obtaining information directly from state insurance authorities rather than imposing additional burdens on insurance companies and their consumers. Within the insurance sector, regulatory overreach and duplication limits insurers’ ability to grow their business and invest in innovation. Unnecessary or duplicative regulatory requirements imposed on insurers add costs that are ultimately paid by personal and commercial consumers through higher premiums. These costs in turn reduce productivity and prevent more beneficial expenditures such as businesses investing in research, offering new products or services, and related job creation. Rising regulatory costs that create higher costs for consumers restrict their ability to buy more beneficial coverage. PCI, in conjunction with the Ward Group (AON Hewitt), conducted a corporate/regulatory compliance cost survey in 2016 which showed these expenses continue to increase annually, including a 19 percent overall increase from 2013 to 2015. In addition, because regulatory costs disproportionately impact small and medium-sized insurers, they can force consolidation and reduce competition. PCI recommends that the Bank Holding Company Act and the Home Owners’ Loan Act should be amended to more appropriately target the Federal Reserve’s examination authority for insurers controlled by a bank or thrift to focus on systemic risks or risks to the federal deposit insurance fund. PCI will be pleased to work with the Committee and its staff on suggested legislative language. Elimination of Federal Reserve Authority over Insurers That Are Holding Companies Some insurance holding companies now supervised by the Federal Reserve have an insurance company as the controlling entity. In this case the primary functional regulator, the insurer’s state insurance department, is supervising the entire group, and Federal Reserve supervision risks duplication and conflict. The Bank Holding Company Act and the Home Owners’ Loan Act should be amended to provide that an insurance company that (1) controls a bank or another bank holding company is not a bank holding company for purposes of the Bank Holding Company Act, or (2) controls a savings association or another savings and loan holding company is not a savings and loan holding company for purposes of the Home Owners’ Loan Act, if it is principally engaged in the business of insurance. A company should be deemed to be principally engaged in the business of insurance if the company’s assets attributable to the company’s insurance activities are more than 50 percent of the consolidated assets of the company. If the insurance company is not a bank holding company, a subsidiary of the company (such as an intermediate company that directly or indirectly controls the bank or savings association) also will not be a bank or savings and loan holding company. The Bank Holding Company Act and the Home Owners’ Loan Act should be amended to eliminate Federal Reserve authority over controlling insurers. PCI will be pleased to work with the Committee and its staff on suggested legislative language. 20 May 8, 2017 / INSURANCE ADVOCATE
Reform the Financial Stability Oversight Council (FSOC), Eliminate Non-Bank Systemic Risk Designations and Strengthen the Independent Insurance Expert FSOC has designated multiple insurance companies as SIFIs (systemically important financial institutions) over the objection of its insurance expert and state regulators. In addition, it has failed to create uniform criteria for designation of a clear and unambiguous exit ramp, and its procedures lack fundamental transparency. There may continue to be a role for FSOC in “looking over the horizon” and coordinating with functional regulators, including state insurance commissioners. For these reasons, PCI supports CHOICE Act provisions that retain the FSOC, but limit its ability to designate systemically important financial institutions. If FSOC is continued, however, the Independent Insurance Expert’s office should be enhanced with employees that are selected and managed by the Independent Expert, not by Treasury, and the office should be funded independent of the Treasury Department. The Independent Insurance Expert’s office is disadvantaged in comparison with other FSOC members by its lack of independent staff and resources. PCI also recommends that a representative of the state insurance regulatory community should be added as a voting member of FSOC. In addition, PCI has recommended the creation of a State-Federal Insurance Coordination Partnership to provide a structure under which FIO (or a successor agency) can coordinate with states and better represent state regulators’ views in international discussions. Other CHOICE Act Provisions PCI also strongly supports several non-insurance-specific provisions of the CHOICE Act, including (1) requiring federal financial regulators to conduct a cost-benefit analysis before issuing rules; (2) increasing the accountability of the Consumer Financial Protection Bureau (CFPB), including repealing the CFPB’s authority to ban financial products it finds “abusive,” and clarifying that insurance is beyond the CFPB’s jurisdiction and (3) elimination of the Chevron deference doctrine under which the courts defer to agency interpretations in judicial review of federal financial agencies’ rules. Conclusion PCI strongly supports the regulatory improvements embodied in the Financial CHOICE Act, which could be further strengthened by the recommended amendments. If enacted, the legislation will better focus regulatory efforts, better protect state-based consumer protections and better support a competitive U.S. insurance market.
PCI recommends that the Bank Holding Company Act and the Home Owners’ Loan Act should be amended to more appropriately target the Federal Reserve’s examination authority for insurers controlled by a bank or thrift to focus on systemic risks or risks to the federal deposit insurance fund.
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[ G UEST O P I N I O N ]
DR . WILLIAM SC OT T MAGILL
A Simple American Solution for Today’s Government-Caused Health Care Crisis “Where words are many, sin is not wanting.” Proverbs 19:10 uThe 2016 platform to repeal the worst healthcare law in American history resulted in one-party control of executive and legislative branches of the federal government in 2017. But voters soon relearned that campaign promises are simple to make, yet hard to keep. It’s all so much more complicated and difficult, we are told, than repealers would have us believe. Really? Perhaps rather than asking how government can repeal the monstrous law it created, we should first look back in time, a time most of us still remember well, and ask a simpler question: QUESTION: How did America create the greatest healthcare system in the world? ANSWER: The Free Market. The free market is simply people doing what they feel is in their best interest, without having to consider what the government wants. In healthcare, that means a person who wants to be healthy seeks the services of specialists who want to be paid to keep them that way. Insurance companies added another benefit people wanted—preventing financial ruin in the event of serious illness or disability—and competed for Americans’ dollars in the Free Market. This created the worst healthcare system in the world, except for all the others. In the last century the federal government complicated and ruined everything by forcing its own “experts” into that beautifully simple, mutually beneficial private relationship. Politicians and bureaucrats looked at Americans not as people or patients, but as “their citizens.” They saw healthcare not as a personal service, but as a limited commodity to be distributed according to the wisdom of government planners in collusion with insurance corporations and hospital chains. This repugnant, anti-liberty government-insurance-hospital collusion culmi22 May 8, 2017 / INSURANCE ADVOCATE
So let’s just do it. Let’s repeal ObamaCare, boot the federal government out of illegally meddling in our private bodily business, and open up the Constitutionally-sanctioned power of our marvelous Free Market to increase the quality and lower the cost of healthcare for all Americans.
nated in ObamaCare, resulting in the guaranteed outcome of all corruption-driven rationing—higher costs, lower supply, falling quality. Will government bureaucrats ever learn? No. Which is why voters revolted at the polls, and must do so again now, by forcing government back into its constitutionally defined limits. Not surprisingly, the simple answer to restoring a fair and beneficial healthcare system in our country is right there in our Constitution and in our history. Article 1, Section 8 of the U.S. Constitution (enumerated powers) gives Congress no authority to interfere in our healthcare. So the first action Congress must take is to repeal ObamaCare, thereby honoring the rule of law, their oath of office and the campaign promises of many. And lest there be any confusion, the definition of repeal is: to revoke, rescind, cancel, reverse, annul, nullify, declare null and void, quash, abolish, vacate, abrogate and recall. Note the absence of the word “modify.”
Dr. William Scott Magill served with the United States Marine Corps (1965-1971), the United States Army Medical Corps (1981-1988), and the Denver Police Dept. (1970-1976). He obtained his bachelors of Business Administration from the University of Denver, Masters of Health Care Administration Trinity University in San Antonio, and medical degree from the University of Health Sciences in Kansas City. Dr. Magill matriculated his residency in Ob/Gyn at Tripler Army Medical Center in Honolulu, and served as the Chief of Ob/Gyn at Irwin Army Hospital, Ft. Riley, Kansas. He was until recently a practicing obstetrician and gynecologist in Springfield, Missouri for 21 years.” As an author and lyricist, his writings and/or interviews have appeared in the Journal of Military Medicine, the Anglican Digest, the Chronicle Republican, Springfield News Leader, the Washington Times and the New York Times, among others. Dr. Magill is the founder and executive Director of Veterans in Defense of Liberty (ViDoL). After 30 years of practice, including some 9000 deliveries, Dr. Magill closed his doors in order to devote all of his efforts to the survival of the U.S. Constitution. Dr. Magill stated at that time, “If we can establish, for the first time in American history, that vehicle for American veterans to fulfill their oath, which did not vanish when we took off our uniforms for the last time, this will be a full time effort.”
Once repealed, the Constitution’s Interstate Commerce clause does give Congress authority to unleash the Free Market in support of consumers by CONTINUED ON PAGE 24
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[ I N T H E A S S O C I AT I ON S ] GUEST OPINION
PIACT Offers Testimony in Support of TNC Legislation uHARTFORD, Conn.—In testimony before the state Senate Insurance & Real Estate Committee on April 18, Professional Insurance Agents of Connecticut President Kenneth A. Distel offered testimony supporting legislation that would create comprehensive legislation for transportation network companies. However, Distel noted the association’s concerns with insurance gaps that would be created by H.B.7126 to establish insurance requirements for taxicabs. PIACT has advocated for the adoption of comprehensive regulations for TNCs in the state since 2015. One of the association’s primary goals for regulating these companies is to eliminate gaps in insurance, which can lead to nonpayment for injuries and damages caused by auto accidents, putting drivers, passengers, pedestrians and others at risk. In his testimony, Distel explained that H.B.7126 would create a gap in insurance because it repeals existing statutory insurance requirements for taxicabs and liveries, leaving them without a suitable replacement. “As drafted, the bill brings taxicabs and liveries under what is essentially the same insurance regulatory regime applicable to TNCs,” said Distel. “Specifically, the coverage requirements that apply to TNC drivers during period one (1) [when they are connected to an internet-software application, but not currently transporting a passenger] will now also apply to taxi and livery drivers. The bill does not define an internet-software application; require the taxi or livery driver to be connected to an internet application; or address the issue of coverage should the taxi or livery driver not be connected to such an application.” Distel further explained how the lack of definitions in the bill creates a coverage gap when taxicabs and liveries engage in activity not covered under the TNC model (e.g., picking up street hails; being dispatched via radio to pick up passengers for hire). “If the bill is legislated in its current form, there are presumably no minimum liability requirements for a taxi or livery 24 May 8, 2017 / INSURANCE ADVOCATE
Distel further explained how the lack of definitions in the bill creates a coverage gap when taxicabs and liveries engage in activity not covered under the TNC model (e.g., picking up street hails; being dispatched via radio to pick up passengers for hire). vehicle that is not connected to an internet-software application during period one (1),” said Distel. “This creates a situation in which the mandatory commercial limits during this period could be interpreted as either being nonexistent or as permissible to be well below those required when they are connected.” Distel recommended the following changes regarding H.B.7126: adjustments to regulations covering taxicabs and livery insurance should be made in separate legislation; if adjustments are made, gaps in insurance coverages should be avoided; and insurance policies should be priced based on the presented risk. “PIACT appreciates the concern that the Senate Committee has demonstrated for our state’s ride-hailing public and those who will drive in that industry,” said Distel. “We want to make sure that they are safe and when accidents happen, they are adequately covered. PIA looks forward to working with the committee on H.B.7126 toward this mutual goal.”[IA] PIACT is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout the state.
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allowing insurance sales across state lines. Long-overdue legislation could finally clear the way for the states’ insurance commissions to adjust their rules and regulations, increasing competition for better coverage at lower rates. Americans regain their ability to choose their doctors and buy insurance which best suits their needs, unencumbered by arbitrary governmentmandated restrictions or requirements to purchase unwanted coverage. Additionally, national legislation should allow patient co-ops, to which Americans have easy access to join. Through these large co-ops, Americans will be able to reap the benefits of the economies of scale provided by that Free Market solution. So while the Constitution prohibits the government from intruding into our private personal healthcare, it does empower the Congress to unleash the power of the Free Market through the Interstate Commerce clause, all happily addressed in the Necessary and Proper Clause. As Chief Justice Marshall wrote in McCulloch v. Maryland: “…Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consistent with the letter and spirit of the Constitution, are constitutional.” Decades of increasingly complex government controls have made the health care system more expensive, less responsive, and set it on a path to failure. By applying the American values of free choice and free markets, Congress has an opportunity to return control of the health care system to the consumer—the patient—and governance of health care decisions will be returned to its proper position, the relationship between patients and their physicians. How simple, how right, how American. So let’s just do it. Let’s repeal ObamaCare, boot the federal government out of illegally meddling in our private bodily business, and open up the Constitutionallysanctioned power of our marvelous Free Market to increase the quality and lower the cost of healthcare for all Americans. It’s a solution so simple, even a Congressman can understand it![IA]
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L AW R E N C E R O G A K
Storm in Progress Defense Applies Even if Temperatures Warmed Up at Time of Accident Sherman v New York State Thruway Authority Edited by Lawrence N. Rogak Plaintiff slipped and fell on a patch of ice the morning after an ice storm, when the temperatures had risen above freezing but a light intermittent rain was falling. The Court of Appeals holds that the “storm in progress” rule is a complete defense entitling defendant to summary judgment, even though at the time of the accident only light rain, and not ice, was falling.— LNR The order of the Appellate Division should be affirmed, with costs. Claimant, a New York State Trooper, slipped and fell on an icy sidewalk outside the trooper barracks in Newburgh. The sidewalk is located on property owned and maintained by defendant New York State Thruway Authority. Claimant commenced this personal injury action against the Authority, alleging that it negligently failed to maintain the sidewalk by failing to remove ice and/or placing salt after a winter storm. Following discovery, both parties moved for summary judgment. As relevant here, the Authority argued that it was entitled to judgment as a matter of law under the “storm in progress” doctrine. The Court of Claims denied the parties’ motions, finding questions of fact as to whether a storm was in progress at the time of claimant’s fall. The Appellate Division reversed and granted the Authority summary judgment (120 AD3d 792 [2d Dept 2014]). We granted claimant leave to appeal and now affirm. Although a landowner owes a duty of care to keep his or her property in a reasonably safe condition, he “will not be held liable in negligence for a plaintiff ’s injuries sustained as the result of an icy condition occurring during an ongoing storm or for a reasonable time thereafter” (Solazzo v New York City Tr. Auth., 6 NY3d 734, 735 [2005]). The Authority established prima 26 May 8, 2017 / INSURANCE ADVOCATE
“Since summary judgment deprives a litigant of the party’s day in court it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues.”
facie that it was entitled to judgment as a matter of law by submitting uncontroverted evidence that a storm was ongoing at the time of claimant’s fall. Claimant admitted at his deposition that “an ice storm” had taken place the night before the accident, and an “intermittent wintry mix” of snow, sleet and rain persisted the next morning until 6:50 a.m., when claimant arrived at the trooper barracks for work. Claimant testified, and a certified weather report confirmed, that it was still raining at 8:15 a.m. when he walked to his vehicle and slipped on a patch of ice. The undisputed facts that precipitation was falling at the time of claimant’s accident and had done so for a substantial time prior thereto, while temperatures remained near freezing, established that the storm was still in progress and that the Authority’s duty to abate the icy condition had not yet arisen. In opposition, claimant failed to raise a triable issue of fact. Therefore, the Appellate Division properly granted the Authority’s motion for summary judgment dismissing the complaint. RIVERA, J. (dissenting): This appeal involves the application on
Lawrence N. ("Larry") Rogak has been practicing insurance law since 1981. He has defended over 23,000 lawsuits and arbitrations and has represented over 75 different insurance companies and self-insured corporations. Lawrence N. Rogak LLC is listed in Best's Recommended Insurance Attorneys, a distinction that requires written recommendations from at least 12 insurance carriers. A 1981 graduate of Brooklyn Law School, Mr. Rogak has published more books and articles on insurance law than any other New York attorney in the field.
summary judgment of the storm-inprogress doctrine to claimant Rodney Sherman’s personal injury action against the New York State Thruway Authority (Authority), arising from his slip and fall on an icy patch of a sidewalk under the care and responsibility of the Authority. On the record before us, triable issues of material fact exist as to whether the storm in question had ended, and if so whether a reasonable period of time had passed to hold the Authority liable for negligence resulting in claimant’s injuries. Therefore, the Appellate Division should be reversed, and I dissent from the majority’s determination to the contrary. “Since summary judgment deprives a litigant of the party’s day in court it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues” (Andre v Pomeroy, 35 NY2d 361, 364 [1974]).” The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v Prospect Hosp., 68 NY2d CONTINUED ON PAGE 29
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[ O N M Y R A DA R ]
BA R RY Z A L M A
Qui Tam Action Takes the Profit Out of Fraud Judgment In Favor of Qui Tam Plaintiff Insurer Can Be Enforced uIn California an insurer can, on its own behalf and on behalf of itself and the state, bring a qui tam action. When the state does not join in the action the insurer may try the action alone. In People ex rel. Allstate Insurance Company v. Dahan, California Court of Appeal — Cal.Rptr.3d, 2016 WL 4917188 (9/15/2016), Allstate obtained a judgment against fraud perpetrators and tried to collect. A private party who brings a qui tam action for insurance fraud under Insurance Code section 1871.7, where the district attorney and the Insurance Commissioner decline to intervene, is entitled to a portion of the proceeds of the action plus fees and costs. The court was confronted with the novel question whether the judgmentdebtor defendants in such an action have standing to challenge the trial court’s postjudgment order allocating the judgment amount between the prevailing plaintiffs, i.e., the private party and the State.
FACTUAL BACKGROUND Allstate Insurance Company, et al. (Allstate), as private-party plaintiff or “relator,” brought a qui tam action on behalf of itself and the State of California (together plaintiffs), against defendants Daniel H. Dahan and his affiliated corporation, Progressive Diagnostic Imaging, Inc. (together defendants), pursuant to the California Insurance Frauds Prevention Act (§ 1871.7 (IFPA)). Neither the district attorney nor the Insurance Commissioner opted to take over the lawsuit. The trial court entered judgment against defendants, finding that plaintiffs had proven 487 claims for violation of Penal Code section 550 by defendants, and awarding a total of $7,010,668.40, comprised of $5,788,516.78 in civil penalties and assessments, and $1,222,151.62 in attorney fees, costs, and expenses of investigation. (The qui tam judgment.) 28 May 8, 2017 / INSURANCE ADVOCATE
When the state declines to intervene, as in this case, the relator tries the action and is entitled by subdivision (g)(2)(A) of section 1871.7 to a “bounty” of between 40 and 50 percent of the proceeds of the action “for collecting the civil penalty and damages” along with “an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs,” which fees and costs are imposed against the defendant.
Following entry of the qui tam judgment, Allstate began efforts to collect it. During its investigation, Allstate learned of a series of real estate transactions conducted by defendants designed to transfer away their assets. Allstate, on behalf of the State, filed an action to set aside the fraudulent transfers of real and personal property. Defendants demurred to the operative complaint on the ground that Allstate lacked standing to proceed with the fraudulent transfer suit, in part because the judgment in the qui tam action was never allocated between Allstate and the People pursuant to section 1871.7, subdivision (g)(2)(A), with the result that Allstate had no stake in the qui tam judgment or authority to pursue collection of that judgment from defendants.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http:// shop.americanbar.org/eBus/Store/Pro ductDetails.aspx?productId=214624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.
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[ ON MY R A DA R ] The trial court in the instant qui tam action granted Allstate’s allocation motion and entered judgment.
DISCUSSION The Qui Tam Procedure Anyone engaging in insurance fraud in violation of Penal Code sections 549, 550, or 551 is subject to penalties and assessments. (§ 1871.7, subd. (b).) Section 1871.7 provides for civil penalties of not less than $5,000 to $10,000 for each fraudulent claim presented to an insurance company, plus assessments of not more than three times the amount of each claim for compensation, and equitable relief. Section 1871.7 authorizes “any interested persons, including an insurer” to bring a qui tam civil action “for the person and for the State of California” to recover penalties and equitable relief for fraudulent insurance claims. (Italics added.) When the state declines to intervene, as in this case, the relator tries the action and is entitled by subdivision (g)(2)(A) of section 1871.7 to a “bounty” of between 40 and 50 percent of the proceeds of the action “for collecting the civil penalty and damages” along with “an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs,” which fees and costs are imposed against the defendant. Defendants acknowledge that “this Appeal has no effect on that [qui tam] Judgment” and does not alter defendants’ obligation to pay the $7 million. Based on a plain reading of section 1871.7, subdivision (g)(2)(A), the bounty in cases in which the People do not intervene is for trying and collecting the judgment. When the words of a statute are clear and unambiguous, there is no need for statutory construction or resort to other indicia of legislative intent, such as legislative history. The right to levy on the $7 million qui tam judgment was Allstate’s for the additional reason that the insurer was the direct victim of defendants’ insurance fraud. Unlike the federal False Claims Act (31 U.S.C. § 3730(d)), where the relators are people with knowledge of the fraud but not victims of that wrong, under California’s IFPA the direct victims of the fraud are the relator-insurers and their insureds. Allstate, as the direct victim who prosecuted the action and prevailed without the People’s participation, necessarily had the
COURTSIDE Allstate should be commended for expending the funds necessary to obtain a judgment against fraud perpetrators for itself and the state of California and for taking the steps necessary to collect that judgment. right to collect the civil penalty and damages. To hold otherwise would be absurd given the California qui tam IFPA action is brought not merely on behalf of the People but “for the person and for the State of California” (§ 1871.7, subd. (e)(1), italics added), and where the qui tam judgment here, drafted by defendants, was written in favor of all plaintiffs, not just the People. Therefore, an allocation order is not a prerequisite to Allstate’s right to enforce the judgment; it neither “changed” nor “legitimized” Allstate’s legal right to collect the proceeds of the action from defendants, a right Allstate always had as relator. As the allocation order is not a prerequisite to Allstate’s ability to levy on the qui tam judgment under section 1871.7, subdivision (g)(2)(A), and given defendants’ concession that the appeal has no effect on, and does not alter their obligation to pay the $7 million qui tam judgment, defendants are not aggrieved by the allocation order and have no standing to appeal from it. In the absence of standing by defendants as appellants, the court had no jurisdiction to hear the appeal.
ZALMA OPINION Allstate should be commended for expending the funds necessary to obtain a judgment against fraud perpetrators for itself and the state of California and for taking the steps necessary to collect that judgment. The defendants refuse to pay the judgment and Allstate has been forced to work through the court of appeal to even move to collect on the judgment and take the money from false transfers of assets made to avoid paying the judgment. The greatest deterrent to insurance fraud is taking the profits out of fraud and I can only hope that Allstate continues its efforts and actually collects the judgment.[IA]
CONTINUED FROM PAGE 26
320, 324 [1986]). Thus, “[a] party moving for summary judgment must demonstrate that ‘the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment’ in the moving party’s favor” (Jacobsen v New York City Health and Hosps. Corp., 22 NY3d 824, 833 [2014], quoting CPLR 3212 [b]). “This burden is a heavy one and on a motion for summary judgment, facts must be viewed in the light most favorable to the non-moving party” (William J. Jenack Estate Appraisers & Auctioneers, Inc. v Rabizadeh, 22 NY3d 470, 475 [2013] [internal quotation marks omitted]), “and every available inference must be drawn in the [non-moving party’s] favor” (People v Torres, 26 NY3d 742, 763 [2016]). If the moving party makes out a prima facie showing, “the burden then shifts to the non-moving party to establish the existence of material issues of fact which require a trial of the action” (Jacobsen, 22 NY3d at 833 [internal quotation marks omitted]). In support of its summary judgment motion, the Authority relied on the stormin-progress doctrine, which provides that “[a] property owner will not be held liable in negligence for a plaintiff ’s injuries sustained as the result of an icy condition occurring during an ongoing storm or for a reasonable time thereafter” (Solazzo v New York City Tr. Auth, 6 NY3d 734, 735 [2005]). “The reasonableness of the time within which [an owner] must respond to its duty to clear the sidewalks is measured from the time that the storm comes to an end since...‘responsibility for ice conditions arises, at the most, only after the lapse of a reasonable time for taking protective measures and never while a storm is still in progress’” (Valentine v City of New York, 86 AD2d 381, 384 [1st Dept 1982], affd 57 NY2d 932 [1982], quoting Valentine v State of New York, 197 Misc 972, 975 [Ct Claim 1950], affd 277 AD 1069 [3d Dept 1950], lv denied 277 AD 1080 [1950]). The doctrine reflects practical concerns related to the challenges and dangers of maintaining property in reasonably safe conditions during inclement weather (see Powell v MLG Hillside Assoc., L.P., 290 AD2d 345, 345 [1st Dept 2002]). It “allow[s] workers a CONTINUED ON PAGE 32
INSURANCE ADVOCATE / May 8, 2017 29
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reasonable period of time to clean the walkways,” and “is designed to relieve the worker[s] of any obligation to shovel snow while continuing precipitation or high winds are simply re-covering the walkways as fast as they are cleaned, thus rendering the effort fruitless” (id.). Thus, when weather conditions are no longer stormlike, or where a storm has turned to rainy conditions that neither imperil workers nor frustrate cleanup efforts, the temporary suspension of a property owner’s duty of care is no longer justified. In accordance with these legal principles, in order for the Authority to establish its storm-in-progress defense and thus carry its prima facie burden on summary judgment, it had to proffer admissible evidence that at the time of Sherman’s accident there was an ongoing storm, or that the storm had ceased and a reasonable amount of time had not yet elapsed before the Authority was required to ameliorate the icy sidewalk conditions. In support of the motion, the Authority submitted deposition testimony from four individuals— Sherman, an Authority Maintenance
Supervisor, and two other Authority employees—as well as a certified weather report from the National Climatic Data Center for Stewart International Airport, which is located five miles from where the accident occurred. According to Sherman’s deposition testimony, on the date of his injury he was working as a state trooper at Troop T barracks in Newburgh, New York. In describing the weather conditions preceeding the accident, Sherman stated there was an ice storm in the area the night before, that during his commute to work the next morning the weather consisted of a “wintry mix” of sleet and rain, and when he arrived at the barracks at 6:50 a.m. the weather was an “intermittent wintry mix.” He remained indoors until 8:15 a.m. when he left to respond to a traffic accident. When he stepped outside the barracks he noted that it “had warmed up considerably” and there was a light rain falling. He walked about eight feet before he slipped and fell on an icy area of the sidewalk. The Supervisor testified that the Authority was responsible for maintaining the sidewalks around the barracks, but during a storm they were a third priority,
after the highways and service areas. Two construction equipment operators responsible for maintaining the roads during a storm, who worked the respective 3 p.m. to 11 p.m. and 11 p.m. to 7 a.m. shifts the night before and into the day of the accident, both recorded in their logs and testified at their depositions that it was raining. The climatological report for the Airport, located five miles away from the barracks, indicated rain and mist and above-freezing temperatures from 10:45 p.m. the night before and for hours following on the day of the accident. In opposition to the Authority’s motion, Sherman relied on his testimony and the evidence submitted by the Authority, as well as various daily log books from other members of the Authority’s salt and sand crew. The log books for the two construction equipment operators indicate that from 11 p.m. the night before the accident until 6 a.m. the day of, there was light to medium rain. Sherman argued that this evidence established the storm had ended hours before the accident, and no later than 5:45 a.m. Applying the storm-in-progress rule, and giving Sherman every favorable infer-
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[ COURTSIDE ] ence, as the Court must on summary judgment (see Torres, 26 NY3d at 763), there are triable questions of material fact as to the actual weather conditions before and at the moment Sherman fell. Specifically, there are questions of fact as to when the storm ended, if at all, and if it did end, how much time had elapsed before Sherman slipped and fell on the icy sidewalk. The Authority claimed that the original ice storm was ongoing because at a minimum, winter precipitation continued during defendant’s drive to work, and rain was falling during a period of near-freezing temperatures. Sherman, on the other hand, argued that the storm was over when he sustained his injuries because by that time all road work had been completed, which would not be the case if the storm was ongoing, and at the time of his injury the weather had warmed up, producing light, and not freezing, rain. We have never held that above-freezing rain alone constitutes a type of storm-inprogress that would relieve a property owner from taking any action to clear or maintain the property. Thus, if an ice storm has changed, due to warming weather, into mere rain, then the storm has ended. Applying this test the Authority’s summary judgment submissions do not establish whether the storm ended or, if so, whether insufficient time had elapsed to require the Authority to take protective measures. Sherman testified there was a wintry mix falling the night before and until 6:50 a.m. the day of the accident, and that at 8:15 a.m., when he exited the barracks, moments before his fall, the temperature was considerably warmer and it was raining. The Authority’s employees, log books, and the climatological report all corroborate his testimony that at least the hour before and at the time of the accident, the temperature was above-freezing and it was raining. The Authority’s crew workers’ depositions and log books indicated light to moderate rain throughout the night and the morning of the accident. Therefore, there remain triable questions of material fact as to whether the storm ended and if so when, requiring a trier of fact to resolve the nature of the precipitation both preceding and at the time of Sherman’s fall, and whether the rain conditions were storm-like. Furthermore, factual questions remain as to whether the precipitation was a post-storm event preventing the Authority from taking protec-
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tive measures to avoid accidents from the accumulated icy conditions caused by the storm. In other words, if the storm conditions had passed, such that there was only above-freezing rain, then the justification for the storm-in-progress rule no longer holds water. Contrary to the majority’s conclusory statement that “undisputed facts” establish a storm-in-progress at the time Sherman fell (maj opn at 3), the summary judgment submissions demonstrate that the weather conditions are highly contested. Although the parties agree there was an ice storm the night before the accident, that is where their agreement ends. Given that the summary judgment proof in the form of Sherman’s testimony, the Authority’s employees’ statements and documentary evidence, and the climatological report, all indicate that above-freezing rain was falling in the hours before and at the time of the accident, material factual questions exist as to the nature of the weather conditions and the applicability of the storm-in-progress doctrine. To the extent the majority infers the stormlike nature of the precipitation, such inference favors the Authority as the moving party. However, on a summary judgment motion this Court must “view the facts in the light most favorable” to Sherman as the non-moving party, and “even if the jury at a trial could, or likely would decline to draw inferences favorable to [Sherman],” the Court “must indulge all available inferences” in his favor (Torres, 26 NY3d at 763). Those inferences, at a minimum, lend support to Sherman’s argument that at the time of his accident the ice storm had passed, evidenced by the existence of non-freezing rain, requiring the Authority to take appropriate safety measures to address the accumulated icy conditions.[IA] 2016 NY Slip Op 03546 Decided on May 5, 2016 Court of Appeals
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[ CYBER NEWS ]
CHRIS MOSCHOVITIS
Mitigating Cyber Risks for the Insurance Industry with the Right Security Controls uIt is no secret that cyber security risks add complexities that often restrict the process of seamlessly carrying out business transactions. Firms and institutions in the insurance industry need solutions that ensure confidentiality, availability, and integrity of sensitive data to avert significant damages to their business. However, companies should never fall into the trap of thinking that a set of solutions today will deliver them safely from the cyber security threats of tomorrow. Unfortunately, many managers are becoming tone-deaf to the constant narrative of “it’s not a matter of if you’ll be hacked–it is a matter of when” and are being seduced by vendors that promise “peace of mind.” These promises are dangerous and expensive fantasies that deliver a false sense of security. That said, business must go on, and we are all responsible for taking pragmatic steps to mitigate cyber security risk. We do this by selecting and applying the right security controls for our businesses. First things first, though: We need to recognize that there is no “one size fits all” solution. Each sector is different and each business is different, even within the same industry. Moreover, each business has a different risk appetite than its peers. The right controls for one business will prove excessive for the next, and not enough for the third. Therefore, the first thing that must be established is the risk appetite of the organization. That is set either by the board, or by the owner. The next thing we need to do is get a grip on business assets. What, exactly, are the things of value we are trying to protect, and what are the threats against them? Is it a matter of protecting intellectual property? Customer data? Classified information? Reputation? Is it a question of physical security? Insider threats? In short, what does your world look like, and where are the threats coming from? It is no accident that the National Institute of Standards and Technology (NIST) framework for improving critical 34 May 8, 2017 / INSURANCE ADVOCATE
infrastructure cybersecurity leads with “Identify” and not with “Prevent.” There is no “Prevent” in cyber security, and the sooner we get comfortable with that, the sooner we’ll get to the real work of Identifying, Protecting, Detecting, Responding, and Recovering (the five NIST framework functions) from cyber security events. Once you have identified what it is that warrants protection, the real work begins. Accounting for your organization’s risk appetite and armed with your asset valuation and threat assessments, you are now ready to apply the right controls. Remember: Controls “do” things. They are not some abstract notion, they do-the-do! There are four kinds of controls: Preventive, Detective, Corrective, and Compensatory. Now, you’ll argue what’s with the “Preventive” controls when one paragraph ago you claimed there is no “Prevent” in cyber security? You’re right, but remember, controls “do things.” A preventive control, therefore, acts like a barrier to an attack. It hasn’t prevented the attack, but just like the barrier on the street that hopes to stop the runaway truck from hitting the building: it hopes to prevent an aspect of the attack. Think of it as a locked door. Another example of a preventive control is segregation of duties. Your systems administrator shouldn’t know the database password, and the database administrator shouldn’t know the systems password. Security awareness training is another excellent example of a preventive control. Detective controls are easier to understand. They detect. They know the door has been opened (e.g., a motion detector), and they do something about it. Either they close it, or alert someone that the door has been opened. Other examples of detective controls include system monitoring applications, intrusion detection systems, even anti-virus and anti-malware solutions. Corrective controls fix or restore the environment. For example, applying the right security patches and upgrades is a corrective control. Restoring your data from backup is another corrective control.
Chris Moschovitis is co-author of the critically acclaimed “History of the Internet: 1843 to the Present” as well as a contributor to the “Encyclopedia of Computers and Computer History” and the “Encyclopedia of New Media.” He is cyber security and governance certified (CSX, CISM, and CGEIT), and an active member of ISACA, ISSA, and IEEE. Chris, in addition to his duties as CEO of tmg-emedia, personally leads the cyber security and consulting teams and delivers cyber security awareness training and consulting. He can be reached at Chris.Moschovitis@tmg-emedia.com.
Finally, compensatory controls are those designed to compensate for some of the damage. A disaster recovery site is a compensatory control. Cyber insurance can also be a compensatory control. Even a backup generator, a second set of servers or computers, or the ability to switch over operations at another country, are all compensatory controls. Keep in mind that there are some solutions that span control classes. For example, an anti-virus/anti-malware solution can be a preventative control, a detective control, and a corrective one all at the same time. Exactly like in real life, you get your flu shot each year in hopes to prevent the onset of this year’s flu strain. You hope that armed with the inoculation your body will detect the attack of the flu virus and will take corrective action to keep you healthy. Unless, sadly, the new strain is so different than the previous year’s that you still end up in bed sneezing and wheezing away. Which is where your compensatory chicken soup control kicks in, making life a little less miserable. What is the right blend of controls for your organization? As we discussed, it depends on risk appetite, type of asset, type of threat, regulatory environment, budget, and skill sets. You need to take all of this into consideration in developing your defense-in-depth cyber security strategy. Remember: You have a tremendous advantage over your attacker, or any expert: You know your business better than anyone else, and you know what’s of value that needs protection. So, more than any solution out there, trust yourself and your judgment and apply pragmatic controls for this cyber season. Because next season, you’ll have to do this all over again.[IA]
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800.285.2258 | Fax 516.488.2167 ryu@hamondgroup.com
w w w.h amo n d gro up.com *Service fee on subsequent renewals and on returning members continues at our usual 20%. Underwritten by the New York State Insurance Fund
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Expect big things in workers’ compensation. E xpect to save a third of your clients 3 0% or more e. Most classes approved, nationwide. e For information call (877) 23 4 - 4 4 5 0 or visit auw.com/us. Follow us at bigdoghq.com. Š2017 Applied Underwriters, Inc., a Berkshire Hathaway company. Our insurance carriers are rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.