Claims Journal / Winter 2014

WINTER 2014 | VOL. 3, NO. 1

Winter 2014 | Claims Journal 1

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OPENING NOTE

The ‘Switching’ Economy

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ew global research finds that as many as two-thirds (67 percent) of insurance customers would consider purchasing insurance products from organizations other than insurers, including 23 percent who would consider buying from online service providers such as Google and Amazon.

The research by Accenture, which is based on a survey of more than 6,000 insurance customers in 11 countries, found that 43 percent of respondents, who could select multiple responses, said they would consider buying insurance from banks, almost one-quarter (23 percent) from online service providers, 20 percent from home service providers, such as telecommunication or home security companies, 14 percent from retailers and 12 percent from car dealers.

“Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants,” said Michael Lyman, global managing director for management consulting within Accenture’s Insurance industry practice.

He said that overall there is a “significant switching risk” and it It is possible that up to $400 is possible that up to $400 billion billion in insurance premiums in insurance premiums could could change hands over the change hands within the insurance industry over the next 12 next 12 months. months.

The research shows that loyalty in insurance is a key issue, with 40 percent of consumers likely to switch to another automobile or home insurance provider over the next 12 months.

Lower prices and more personalized service are the top reasons for consumers to switch to a new insurer.

Forty-one percent of respondents said they were willing to pay more to get personalized advice when purchasing their insurance.

The research also reveals that two-thirds (67 percent) of consumers are interested in mobile insurance services — such as sending pictures of their car to report a claim, or displaying their proof of insurance on their mobile phone — while less than half (46 percent) of the respondents that are mobile device owners have already used their tablets, and 37 percent their smartphones, to deal with their insurers.

Also according to the survey, more than one-third (35 percent) of insurance customers are open to providing access to their usage or behavior information — such as car-usage or lifestyle information — if this can give them better value for their insurance coverage.

“Visionary insurers must also be prepared to conceptualize their business more broadly, building online communities and offering non-insurance services and be willing to create ecosystems of partners who together can provide the total, personalized and convenient experience today’s customers expect,” said Lymann.

Accenture commissioned a survey of 6,135 owners of life and/or auto and home insurance policies in 11 countries. The online survey was designed by Accenture and conducted by Lightspeed Research in July 2013.

Andrea Wells Editor-in-Chief 4 Claims Journal | Winter 2014

EDITORIAL Editor-in-Chief Andrea Wells | awells@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Burke Coleman, Steven Plitt Contributing Writers Matt Cullina, Steven Fasano, Steve Leger, Scott Nesvold, Peter Selvin, Jason Wolf SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chairman Mark Wells Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@insurancejournal.com

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WINTER 2014 | Vol 3. No. 1

CONTENTS CLAIMS REVIEW 7

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Minicars Score Poorly in IIHS Crash Tests More Jobs in Insurance in 2013 Auto Recalls Hit 22 Million in 2013 Texas Auto, Homeowner Complaints at a Record Low Study: Health Care Costs Grow With Body Mass Shopping Cart-Related Injuries Hurt 66 Kids a Day N.Y. Issues Bonds to Resolve Workers’ Comp Claims

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SPECIAL REPORT 12 16

18 21

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To Judicial ‘Hellholes’ and Back Drones on the Horizon: Use of Unmanned Aircraft Raises Privacy, Personal Injury Issues 2014 Forensic Engineering Directory Traditional Insurance Products and Cyber Fraud Claims The Importance of Managing and Documenting an Incident Scene The Rising Score of Youth Sports Head Injury Claims

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IDEA EXCHANGE 27

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6 Claims Journal | Winter 2014

Essentials: Wisconsin Supreme Court Redefined the Boundary Lines of Occurrences How to Improve the Valuation of Flooring Losses Why Digital Dictation Works Best Burke’s Law: Extrinsic Evidence and the Duty to Defend Final Offer: Erasing the Abuse of Unlicensed Public Adjusters

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CLAIMS DEPARTMENTS 4 9 10 11 14 15 29

Opening Note Snapshot Business Moves Web Exchange People Dollars & Sense Adjuster Toolkit

CLAIMS REVIEW | NEWS & TRENDS

Minicars Score Poorly in IIHS Crash Tests

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ust one of 11 minicars tested in an Insurance Institute for Highway Safety small overlap front crash test achieved an acceptable rating.

The Chevrolet Spark earned an acceptable rating in the test, along with good ratings in the Institute’s four other crashworthiness evaluations. The minicar received a 2014 Top Safety Pick award as a result.

Introduced in 2012, the small overlap test replicates what happens when the front corner of a vehicle collides with another vehicle or an object such as a tree or utility pole. In the test, 25 percent of a vehicle’s front end on the driver’s side strikes a rigid barrier at 40 mph.

The test is more difficult than the headon crashes conducted by the government

or the longstanding IIHS moderate overlap test because most of the vehicle’s front-end crush zone is bypassed. That makes it hard for the vehicle to manage crash energy, and the occupant compartment can collapse as a result.

The two worst performers were the Honda Fit and the Fiat 500. In both cases, intruding structure seriously compromised the driver’s space, and the steering column was pushed back toward the driver. In the case of the Fit, the dummy’s head barely contacted the frontal airbag

More Jobs in Insurance in 2013

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he insurance industry saw considerable job growth in 2013.

InsuranceJobs.com, an employment website for insurance professionals, provided an overview of key employment trends in the insurance industry for December 2013 based on preliminary statistics reported by the U.S. Bureau of Labor Statistics.

The U.S. Bureau of Labor Statistics released a report Jan 10, 2014 announcing a 0.13 percent increase in the number of workers in the insurance industry from

November 2013 – December 2013. The industry currently employs 2.384 million workers compared to 2.381 million in December 2013.

November marked six months of job growth for the insurance sector, a major feat in an economy where jobs are scarce.

Specifically the insurance agent and broker subsectors are close to reaching their employment peak. The sectors have not seen numbers this high since July 2007 just before the economic recession of 2008. Right behind agents and brokers in job numbers are property/casualty insurers which added 1,800 jobs in November. The most recent reports from BLS show this is the highest number of jobs for the sector since June 2011.

In conjunction with the increase of jobs the insurance industry has seen a decrease in its unemployment rate. The unemployment rate dropped to 2.9 percent in November and then dropped again in December to 2.8 percent. CJ

before sliding off and hitting the instrument panel. During the test of the 500, the driver door opened after the hinges tore. An open door creates a risk that the driver could be partially or completely ejected. CJ

Auto Recalls Hit 22 Million in 2013

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utomakers recalled 21.9 million cars and trucks in the U.S. last year, a nine-year high.

The National Highway Traffic Safety Administration says automakers initiated 632 separate vehicle recalls in 2013, up 9 percent from the prior year.

Companies are saving money by using more common parts. But that can force them to recall many more vehicles when something goes wrong.

Chrysler Group initiated the most recalls, with 36. Among those was a recall of 282,000 minivans whose air bags could deploy on the wrong side.

In all, Chrysler recalled 4.7 million vehicles last year.

After Chrysler, General Motors had the most recalls, with 23. Mazda had the fewest, with two.

Toyota recalled the most vehicles, with 5.3 million in 15 separate recalls.

Mercedes-Benz recalled the fewest vehicles, with 747. CJ Winter 2014 | Claims Journal 7

CLAIMS REVIEW | NEWS & TRENDS

Texas Auto, Homeowner Complaints at a Record Low

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n 2013, Texas drivers and homeowners filed the fewest number of complaints against their insurance companies since the Texas Department of Insurance (TDI) began keeping records, the Insurance Council of Texas reported.

According to TDI’s Consumer Protection division, there was approximately one justified complaint for every 16,000 auto or homeowner insurance policies in effect.

Homeowner complaints peaked in 2009, but last year with about a quarter of a million more policies in effect, only

364 justified complaints were filed against insurers, a new record low, the ICT said.

Auto insurance complaints have been going down every year since 2002. Last year, with nearly 15 million auto policies in effect, 900 drivers filed complaints with TDI, another record low.

The majority of complaints filed with TDI over property/ casualty issues deal with delays in settling claims. With a complaint in hand, TDI’s Consumer Protection division steps into help resolve these claims for consumers. CJ

Study: Health Care Costs Grow With Body Mass

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esearchers at Duke Medicine reported that health care costs increase in parallel with body mass measurements. Pharmacy and medical costs could double for obese people compared with those at a healthy weight, according to the recent study published in the journal Obesity.

The researchers found that costs associated with medical and drug claims rose gradually with each unit increase in body mass index (BMI).

Notably, these increases began above a BMI of 19, which falls in the lower range of the healthy weight category.

Using health insurance claims data for 17,703 Duke employees participating in annual health appraisals from 2001 to 2011, the researchers related costs of doctors’ visits and use of prescription drugs to employees’ BMIs. BMI is a measurement of a person’s weight adjusted for his or her height, and can be used to screen for possible weight-related health problems. A normal BMI, which suggests a healthy weight, is 19-24, while overweight is 25-29 and obese is 30 and above. For example, a 5-foot-6-inch person who weighs 117.5 pounds has a BMI of 19, while a person of the same height weighing 279 pounds has a BMI of 45.

8 Claims Journal | Winter 2014

Measuring costs related to doctors’ visits and prescriptions, the researchers observed that the prevalence of obesity-related diseases increased gradually across all body mass levels. In addition to diabetes and hypertension — the two diseases most commonly associated with being overweight or obese — the rates of nearly a dozen other disease categories also grew with increases in BMI. Cardiovascular disease was associated with the largest dollar increase per unit increase in BMI. The average annual health care costs for a person with a BMI of 19 was found to be $2,368; this grew to $4,880 for a person with a BMI of 45 or greater. Women in the study had higher overall medical costs across all BMI categories, but men saw a sharper increase in medical costs the higher their BMIs rose. CJ

Shopping Cart Related Injuries Hurt 66 Kids a Day

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ccording to a new study, the number and rate of injuries sustained by children in shopping carts continues to climb, despite a voluntary shopping cart safety standard implemented in the United States in 2004.

The study, conducted by researchers in the Center for Injury Research and Policy of The Research Institute at Nationwide Children’s Hospital, examined data relating to children younger than 15 years of age who were treated in U.S. emergency departments from 1990 through 2011 for a shopping cart injury.

An estimated 530,494 injured children were documented during the study period, averaging more than 24,000 children annually; equal to 66 children per day or one child treated every 22 minutes.

The study, published in the January print issue of Clinical Pediatrics, found that falls from a shopping cart accounted for the majority of injuries (70.4 percent), followed by running into/falling over the cart, cart tip overs and entrapment of extremities in the cart. The most commonly injured body region was the head (78.1 percent). While soft tissue injuries were the most common diagnosis for these head injuries, the annual rate of concussions and closed head injuries (which are concussions and internal head injuries) increased significantly by more than 200 percent during the study period, with the number of these injuries going from 3,483 injuries in 1990 to 12,333 in 2011. Most of this increase was associated with children ages 0 to 4 years. CJ

CLAIMS REVIEW | NEWS & TRENDS

N.Y. Issues Bonds to Resolve Workers’ Comp Claims

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ew York issued $370 million in bonds to assist businesses in failed group self-insured trusts fulfill their obligations to their injured workers, Gov. Andrew Cuomo announced in December.

The bonding was made possible in Cuomo’s 2013 Business Relief Act, which authorized the New York State Workers’ Compensation Board (WCB) to use the proceeds to purchase insurance to pay the claims of these injured workers; the employers will repay the cost of insurance under favorable terms, according to the announcement. The Business Relief Act authorizes up to $900 million in bonding capacity.

“Through the 2013 Business Relief Act, the state is providing a practical and affordable way for thousands of businesses to meet their responsibilities so that injured workers can receive the compensation they deserve,” Cuomo said.

The failed group self-insured trusts are estimated to have liabilities of a little less than $800 million.

The bonds are being issued through the Dormitory Authority of the State of New York. Officials said the bonds received the highest possible cred-

it ratings from Moody’s, Standard & Poor’s and Fitch.

Lead bank Siebert Brandfort Shank and Goldman Sachs brought the bonds to market.

The WCB will use the bond proceeds to purchase insurance policies that will pay the claims of injured workers because those employers — members of insolvent group self-insured trusts — abandoned their claims, officials said.

The businesses in these trusts will reimburse the WCB for the cost of these “assumption of liability policies” over 10 years, at low interest rates.

Transferring claims to insurance companies provides for the payment of benefits to injured workers; currently, the WCB pays their claims and is engaged in legal proceedings to recoup those costs, officials said.

The insurance does not relieve trust

members of liability, but it does create a clear and lower-cost mechanism for employers to meet their obligations toward their injured and ill employees.

Assumption of liability insurance also caps the cost of these claims for employers, at a favorable price, officials said.

The WCB said this is “a creative and very effective method” of ensuring injured workers receive all the benefits they deserve under the law, while at the same time resolving the difficult situation these employers find themselves in after their group trusts failed. CJ

CLAIMS REVIEW | SNAPSHOT

Before and After: Smoke Damage C RDN was called out to clean property contents after a fire in Michigan.

The items included a child’s cherished backpack that was damaged by heavy smoke from a fire in the home. CRDN carefully cleaned and restored the backpack to almost new condition. CJ

Winter 2014 | Claims Journal 9

DEPARTMENTS

BUSINESS MOVES Pictometry International Corp. and Eagle View Technologies Inc. has offices in Rochester, New York, and Bothell, Washington.

KKR, Sedgwick Sedgwick Claims Management Services Inc., a provider of claims and productivity management technology and services, said global investment firm KKR, together with Sedgwick’s management team, agreed to acquire majority ownership of Sedgwick for approximately $2.4 billion from its current group of investors. The current investors include Hellman & Friedman LLC and Stone Point Capital LLC. On an annual basis, Sedgwick handles more than 2.1 million claims and has fiduciary responsibility for claim payments totaling more than $11 billion. The transaction is expected to close during the first quarter of 2014, subject to customary conditions and regulatory approvals.

Verisk, EagleView Verisk Analytics Inc., a supplier of data to insurers and banks, agreed to buy EagleView Technology Corp. for $650 million in cash, adding an image library that encompasses about 90 percent of U.S. structures. The deal will allow Verisk to bolster its underwriting software and expand offerings to insurance and government customers, according to a statement.

The insurance and construction industries use EagleView’s technology and methods to obtain detailed roof and wall measurements from aerial imagery. The image library covers more than 1 million square miles. The parent company of 10 Claims Journal | Winter 2014

Caliber Collision Caliber Collision Centers, an operator of collision repair facilities, acquired B&G Collision in Temple, Texas. The new 20,000 square foot center is the company’s 59th location in Texas.

In a separate announcement, Caliber Collision Centers acquired A&R Auto Body and reopened the 8,200 square foot location as Caliber’s newest center in San Clemente, Calif.

SNL, iPartners SNL Insurance acquired iPartners LLC, a SaaS provider of business intelligence reporting for property/casualty and life insurance companies for over 15 years.

SNL Insurance client insurers will now have access to an internal reporting tool to help them collect, analyze and use internal data to grow operations and maximize efficiency. SNL Insurance clients will have the option to add the iPartners reporting solution to their current subscription at a preferred rate.

CCC, Auto Injury Solutions CCC Information Services Inc. (CCC) acquired Auto Injury Solutions, Inc., formerly a division of Concentra Inc., a division of Humana Inc. Terms of the transaction were not disclosed.

Crane Engineering, Safety Engineering Associates Crane Engineering, a Midwest-based forensic engineering firm, has completed the acquisition of Safety Engineering Associates, a vehicle testing and accident reconstruction firm. Safety Engineering Associates’ clients will have access to

Crane Engineering’s complete chemical, materials, metallurgical and micro-imaging laboratories, including its in-house 3D Laser scanner and Computed Tomography (CT) resources. Safety Engineering Associates will keep its external brand, Madison, Wis. office location.

GC3 Des Moines-based Guide One Taylor Ball and TC3, a claims construction and consulting company specializing in the reconstruction of churches, schools, senior living centers, institutions and businesses, is changing its name to GC3. GC3 said it will continue to be positioned as a product under the GuideOne portfolio, while also standing as an independent company outside of GuideOne. The shift to the new name, including rebranding of services and changes to marketing materials, has already begun.

Geico Geico said it plans to hire more than 475 new associates in 2014 in its regional office in Tucson.

The Tucson office, which already employs more than 1,350 associates, is recruiting candidates for entry-level sales, customer service and claims customer service positions. The company is also hiring college graduates for liability claims customer service positions as well as for its management development program. The office opened for business in 2003 with fewer than 50 associates. Geico is also looking to hire auto damage adjusters and MDP candidates in Phoenix, Las Vegas, Portland and Seattle.

Lloyd’s Lloyd’s launched its new shared service, Volume Claims Service (VCS), which it said is part of its Claims Transformation Program, for fast and fair handling of non-complex claims. VCS is designed to handle high volume, low value claims which make up around 85 percent of total claims in the Lloyd’s market. The service is provided by two competing third party service providers — Xchanging and Crawford & Co. CJ

DEPARTMENTS

WEB EXCHANGE Video Highlights Most Cat Models Not Helping the Insurance Industry http://www.insurancejournal.tv/videos/10483/ Cat modeling is a huge trend in the insurance industry, but Michael Pilla, CEO of Technical Risk Underwriters which writes builders’ risk, standalone earthquake DIC for fixed and completed property, and flood for completed property, says not all models are created equally. In this video, Pilla discusses why most cat models are creating a false sense of security for the insurance industry and what systems are a better indicator of risk and estimator of loss.

Podcast Highlights Digging Up Lost Policies http://www.insurancejournal.tv/videos/10755/ With insurers constantly merging and relocating, policies can get lost in the shuffle.

Sheila Mulrennan, president of the Insurance Archaeology Group located in New York City, explains when and why insurers may need help finding policies and the types of information that can be used to verify coverage.

Fraud Trends in 2014 http://www.insurancejournal.tv/videos/10703/ Roger Morris, chief communication officer at the National Insurance Crime Bureau, shares fraud scams adjusters should be on the lookout for in 2014. He explains the need for medical task forces and the top states where anti-fraud legislation will be pursued.

In a Reader’s View Florida Bill Would Restrict Insurers in Underwriting Gun Owners Florida lawmakers say they want to protect policyholders’ second amendment rights to bear firearms by preventing insurers from issuing, renewing or canceling a policy based on whether the policyholder possesses a gun.

The state’s Senate Banking and Insurance Committee

approved a bill last month that would restrict an insurer inquiring whether a home or auto insured owns any firearms.

Senator Tom Lee (R-Brandon), who is sponsoring the legislation, said it is needed to protect gun owners’ rights and privacy.

Under the bill (SB424), it would be illegal to refuse a consumer’s application for new or renewal coverage by charging an unfairly discriminatory rate based on whether the applicant owns or possesses firearms.

The story generated some interesting comments from readers. Read a few of the comments below: Tom Harvey says: This bill will have the general public subsidizing the risk of guns. It will also stop insurers from contributing to the safe storage of guns. More kids will die as guns get left out.

‘What are you saying?’ says: Interesting comment regarding more kids dying. Can you please show me your evidence that this bill in particular will have the result you imply? Responsible gun owners already take steps to protect children from the danger of firearms, knives, hazardous chemicals……. I subsidize folks who have trampolines and swingsets for kids so it only seems fair that others subsidize gun owners, that is why it is called risk sharing.

Rob Jones says: This is rubbish. If I want my insurance company to pick up the pieces when it all goes wrong then they should be aware of the risks. If I have a pool in the back yard, they want to know if it is safe – if I drive a car, they expect me to maintain the brakes.

What is wrong with them asking how I prevent my kids and their friends from accessing my guns? CJ

ClaimsJournal.com Web Poll Do You Think Homeowners Insurers Should Exclude Certain Breeds of Dogs Deemed Dangerous?

58.89%

(692 votes)

Yes, insurers have the right to exclude certain dog breeds.

36.94%

(434 votes)

No, insurers should not exclude any type of dog breed.

4.17%

(49 votes)

Not sure.

Total Votes: 1.175 votes Winter 2014 | Claims Journal 11

SPECIAL REPORT | LIABILITY

To Judicial ‘Hellholes’ and Back

By Don Jergler

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alifornia isn’t just a warm place to live, which is often the case even in winter, but it turns out the state is considered a “judicial hellhole.”

The American Tort Reform Foundation issued its annual “Judicial Hellholes” report last month, and it singles out California’s civil courts as the nation’s top place to experience extreme misery or squalor — as “hellhole” is defined in the Merriam-Webster dictionary.

The annual report also named civil courts in Louisiana, New York City, West Virginia, Southwestern Illinois’ Madison and St. Clair counties and South Florida as among the nation’s “most unfair.”

In other words, those are places the foundation considers the worst in which to face a lawsuit.

The report ranks six “judicial hellholes,” and it places 10 jurisdictions on a watch list, as well as bad court decisions the group calls “dishonorable mentions.” The report throws in a few bright spots too.

“With a legislature that is seemingly run by and for personal injury lawyers and a wildly permissive judiciary, California remains ignominiously atop the Judicial Hellholes list for a second consecutive year,” the report states. “The once-Golden State continues to be a breeding ground for consumer class actions, disability-access lawsuits and asbestos claims, while also serving as something of a last-stand for a stubborn nuisance of a liability theory.”

products they make and the services they provide.

“Their principal goal is to escape any kind of legal accountability for any kind of dangerous products they make, the defective drugs they market, the food that is polluted, the chemicals that are increasingly shown to harm people’s bodies,” he said. “These companies want a get out of jail free card and they get mad when they can’t get it.”

To support its dubious ranking on California, the report cites a surge of consumer class action lawsuits targeting the “Big Food” industry.

Roughly a dozen plaintiffs’ law firms alone have filed nearly 75 class action lawsuits over the past few years against “Big Food,” and counting filings from additional firms there were more than 100 consumer class actions filed against food makers in 2012 — five times the number filed four years earlier, according to the report.

there is no sugar in their product, the report notes.

Many of these suits go through the U.S. District Court for the Northern District of California, which the report states has a “reputation for receptivity to such claims.”

The Northern District of California in San Francisco has been called “the food court,” since it hosts more food-marketing and food-labeling lawsuits than any other federal court, according to the report.

Beside the “Big Food” suits, the report credits the state’s plaintiff-friendly consumer laws and large population for its top tier “hellhole” status.

The report cites a surge of “Rarely has there been a week class action lawsuits targeting in 2013 without a report of another class action filed against a food the food industry. maker,” the report states.

Mislabeling California groups that have been fight Among the examples the report draws ing to turn the state’s litigious tide weren’t on is a class-action suit against Trader Joe’s shocked by the state’s top ranking. accusing the Monrovia, Calif.-based speConsumer View “I’m not really surprised by the ranking,” cialty grocer of intentionally mislabeling Harvey Rosenfeld, founder of Santa said Kim Stone, president of the Civil several of its branded packaged foods so Monica, Calif.-based Consumer Watchdog, Justice Association of California. they appear healthier than they actually sees it differently.

Stone noted that California often ranks are.

“I think California must be a tough near the bottom in surveys that rank Over the past 15 months companies place for a corporate defendant who states by business friendly environments, like Chobani, and WhiteWave, which sells wants to escape justice,” he said. “It’s a and she puts the blame squarely on the Horizon Organic dairy products, and Silk little bit like Satan saying heaven is a little shoulders of lawmakers. brand products, have seen lawsuits from too chilly for him.” plaintiffs’ lawyers claiming the compa Rosenfeld thinks the class action proADA and Prop 65 nies use the term “evaporated cane juice” cess is currently skewed toward protect “The legislators over the years have been instead of “dried sugar cane syrup” or ing defendants, and that it helps the big very friendly to a number of plaintiffs’ “sugar” to make consumers believe that corporations elude accountability for the lawyers proposals and have created new 12 Claims Journal | Winter 2014

and sometimes creative ways for folks to sue each other in our state,” Stone said.

She blames suits related to the Americans with Disabilities Act and Proposition 65.

“Both of those are taking off,” she said.

ADA’s federal law enables people who are personally injured in some way because of an ADA violation to sue. In California, you simply have to show an access violation to sue for an ADA violation, Stone noted.

“Because of that you’ve had this cottage industry spring up of lawyers who have made a living off of very minor and technical ADA violations,” Stone said, adding that attorneys often have the goal of getting a quick $10,000 settlement. “That, in my opinion, is a little like legalized extortion.”

Prop. 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, was intended to inform and protect Californians from chemicals known to cause cancer and birth defects. The law

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passed, which the group said cost the state time and money when the legislature had to reconvene and reenact each provision of the law separately. It also gave a mention to the Illinois appellate courts for expanding workers’ compensation liability beyond the intended scope and providing excessive compensation.

The report gives props to several state court decisions the authors side with, including: The Colorado Supreme Court for instructing trial courts to play an active role in reining in overly broad discovery; the Idaho Supreme Court for standing against “vexatious litigants;” the Illinois Supreme Court for going against the filing of asbestos cases with no connection to the state; the Maryland Court of Appeals for retaining a rule that a defendant is not liable when a plaintiff ’s own actions contributed to his or her injury; the U.S. Court of Appeals for the Fifth Circuit for upholding Mississippi’s $1 million limit on noneconomic damages in general personal injury cases. CJ

requires the governor to annually publish a list of these chemicals.

Businesses that may have those chemicals present must post a warning sign.

When the act passed there were some 30 chemicals listed. Now there are nearly 900 on the list.

“And if your business doesn’t have a sign up, they can sue your business and they often sue for $80,000, $100,000,” Stone said, adding that the signs are useless. “They provide little or no valuable information to the consumer.”

Watch List Communities Communities on the group’s new watch list are: Cook County, Ill.; Baltimore, Md.; Philadelphia, Penn.; Newport News, Va.; New Hampshire; St. Louis, Mo.; Clark County, Nev.; Jones County, Miss.; Spartanburg, S.C.; Atlantic County, N.J. The report calls out “dishonorable mentions,” for court decisions it disagrees with. It called out the Oklahoma Supreme Court for nullifying a tort reform law

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Winter 2014 | Claims Journal 13

DEPARTMENTS

PEOPLE Woody Hill

Rachel Ehrlich

George Burnett

Laurie Infantino has been named education director of Insurance Journal’s Academy of Insurance.

The insurance education professional will focus on the quality of the instructors and the education content offered by the Academy of Insurance.

Infantino is currently president of Insight Insurance Consulting and the Insurance Community Center in La Quinta, Calif. She began her career in the insurance industry in 1971 and launched her career as an insurance educator in 1977 when she cofounded the Insurance Skills Center, which was eventually purchased by IBA West (now IIABA Cal).

Three years ago Infantino formed the Insurance Community University, an online education site similar to the Insurance Journal Academy. Insurance Community and University focuses on core technical topics and provides continuing education credits.

IJ’s Academy of Insurance provides online training on sales, agency management, coverage analysis, designation programs, claims and other topics.

Eastern Alliance Insurance Group (EAIG) appointed Steven Mansfield as regional underwriting manager, and Sandra Hodgson as regional claims manager, for its Midwest territory. EAIG, a subsidiary of ProAssurance Corp, specializes in workers’ compensation.

Mansfield and Hodgson are both based out of Eastern’s Midwest Regional Office, located in Carmel, Indiana, and report to Mort Large, Midwest Regional Business Executive.

Mansfield brings 10 years of underwriting and account management experience in workers’ compensation. He most recently served as the vice president of workers’ compensation brokerage in the Midwest for Specialty Risk of America.

Hodgson brings 32 years of claims, account management and sales experience. She most recently served as the claim manager of workers’ compensation for United Heartland.

Texas Mutual Insurance Co., a workers’ compensation insurance provider, has named Woody Hill its vice president of loss prevention. Hill will oversee workplace safety services for the company’s 57,000 policyholders.

Hill has 30 years’ experience in workplace safety and health. He most recently served as vice president of loss control for Employers Compensation Insurance

14 Claims Journal | Winter 2014

Co. in San Francisco.

Michelle Raue joined State Auto’s Western Region in Austin, Texas, as claims regional manager.

Raue assumes responsibility for the local execution of the group’s claims strategy, claims quality and customer service. She brings 17 years of claims experience with other national carriers.

Michael Clingman has joined the Cambridgebased Workers Compensation Research Institute (WCRI) as a regional director. At WCRI, Clingman will be responsible for relationships, revenues, and the impact of studies in a dozen states.

Clingman will be based in Oklahoma.

Most recently, Clingman served as administrator of the Oklahoma Workers’ Compensation Court. Prior to that, he held executive positions in state government and the private sector, including CEO of the Oklahoma State Insurance Fund, Oklahoma state budget director, Oklahoma Secretary of the Senate, Secretary of the Oklahoma State Election Board, CEO of the Arkansas Workers’ Compensation Commission, and he directed the property/casualty lines of an insurer.

CAMICO, a national CPA-focused insurance program for the accounting profession, has appointed Rachel Ehrlich as vice president and chief claims officer.

Ehrlich has served in various legal, claims and underwriting positions, most recently as senior vice president, U.S. casualty claims, for Navigators Management Co. She began her insurance claims career with an excess/surplus lines broker before earning a law degree.

Oklahoma Attorney General Scott Pruitt has named longtime prosecutor George Burnett as the new chief of the Workers’ Compensation, Insurance, and Social Security Fraud Unit.

Prior to joining the attorney general’s office, Burnett served 26 years as an assistant district attorney.

Matthew Weaver was named vice president of sales at CRDN, the Certified Restoration Drycleaning Network. Prior to joining CRDN, Weaver spent 20 years in the insurance industry, most recently with Allied Insurance, a subsidiary of Nationwide Insurance, in Atlanta. CJ

DEPARTMENTS

DOLLARS & SENSE $24.7Billion

The financial losses caused by identity theft in 2013.

According to a national household survey of 70,000 people issued by the Bureau of Justice Statistics, 1 out of every 14 Americans age 16 or older was a target or a victim of identity theft. Identity theft resulted in $24.7 billion in financial losses last year and affected more than 16.6 million people. The average financial loss was $1,769.

146,000

The number of nonfatal workplace injuries and illnesses reported by New York employers in 2012. This represented a significant decrease in the private industry rate of total recordable cases over the year.

About 69,000 injury and illnesses were reported by state and local government workers.

.13%

The slight increase in insurance industry hiring reported by the U.S. Bureau of Labor Statistics for the period November through December 2013. The insurance industry now employs 2.384 million workers compared to 2.381 million in December 2012.

Property/casualty insurers added 1,800 jobs in November, the highest number of jobs for the sector since June 2011.

9%

The percentage by which insurance fraud referrals increased in Pennsylvania in 2013, according to fraud statistics compiled by the Pennsylvania Insurance

Fraud Prevention Authority. According to Ralph Burnham, executive director of the Insurance Fraud Prevention Bureau, fraud referrals for auto insurance increased 9 percent; workers’ compensation referrals increased 7 percent; and homeowners’ and renters insurance increased 12 percent.

Insurance fraud bureaus in Pennsylvania reported 408 arrests and assisted in an additional 37 arrests made by other law enforcement agencies.

87

The number of people killed on highways in Wyoming in 2013, according to the Wyoming Highway Patrol. That was 34 fewer than in 2012 and the lowest number since 1945. The number of crashes involving people who weren’t wearing seatbelts dropped 23.8 percent in 2013 over the previous year.

47%

The percentage of people killed in car crashes in Utah who were not wearing a

seatbelt. Utah transportation officials say they counted 219 traffic deaths in Utah in 2013, and almost half of the car crash victims who died were not buckled up.

224

The number of aircraft accident fatalities in 2013 involving large commercial planes, a 10-year low. That compares with 703 annually on average from 2003 to 2012.

3.2%

The average premium increase going into effect in the voluntary market for workers’ compensation in Nevada. Nevada employers who purchase their workers’ compensation insurance in the assigned-risk market will see an average increase of 3.3 percent. Both increases will take effect on March 1, 2014..

$30.2Billion

The amount the insurance industry contributed to California’s gross state product, accounting for about 1.6 percent of the state’s GSP, according to the report, released by the Insurance Information Network of California. California has a nearly $2 trillion economy that ranks it as a global financial power, thanks in part to a multi-billion dollar boost from the property/casualty insurance industry, according to the report. The Insurance Information Institute also found that: • California employs more insurance professionals than any other state.

Property/casualty insurers provided 293,807 California jobs in 2012 — almost 10 percent of the nation’s insurance workforce. California insurance jobs accounted for $21.2 billion in compensation in 2012.

•In 2012, property and casualty insurance claims payments totaled $32.6 billion in California, while life insurance claims and benefits payouts in California totaled almost $41.8 billion.

•California collected $2.4 billion in premium taxes from insurers in 2012, more than any other state in the country.

•Californians insure substantially more cars — 24.2 million in all — than drivers in any other state. CJ Winter 2014 | Claims Journal 15

SPECIAL REPORT | LIABILITY

W

ill the skies soon be full of drones? It’s something citizens and governments alike are discussing.

“There are a lot of concerns in this burgeoning industry, and it’s a hot legal issue right now,” says Eduard Goodman, chief privacy officer at IDentity Theft 911.

Several dozen states already are weighing possible legislation to control the use and spread of drones. The Federal Aviation Administration plans to have regulations in place by 2015 for drones to begin using commercial airspace.

Issues surrounding the use of drones are still emerging but those most likely to concern insurers can be placed into one of three categories: privacy and security, personal injury and property damage.

getting everybody in trouble,” Goodman says.

Insurers may be able to offer specialty riders similar to cyber insurance coverage for customers with an increased chance of facing privacy or security issues. Another option may be to stipulate training requirements that ensure drone operators understand existing privacy laws. In addition, policyholders may be required to meet technical and security prerequisites for covered drones in order to help insurers avoid exposure if a device or its camera is hacked.

Personal Injury Potential personal injury from an errant or malfunctioning drone is another concern. Amazon’s announcement that it is Privacy and Security interested in exploring the use of drones to Privacy and security worries are at the deliver packages spurred questions. How top of the list when people talk about would such a drone be controlled? Would drones. Unlike remote-controlled airit be actively piloted or would it operate planes, which have been in use for many more autonomously, perhaps off the delivdecades, drones are far more likely to have ery destination’s coordinates? How would video and/or audio recording capabilities. it navigate around the objects it would Reasonable expectations of privacy probaalmost certainly encounter? Others said bly won’t change to reflect the intrusion of they were worried about the potential for drones, and much of the initial legislation harmful interactions with humans — flyis focusing on this issue. ing along a crowded sidewalk on the way Lawmakers are concerned whether to its destination, for instance. drones can capture images of people with These are issues that must be addressed out their permission. by drone operators and manufacturers, For insurers, incidental, rather than and they are also topics insurers should purposeful, surveillance may be a more consider now in order to be ready to propressing issue at the outset. One sample vide appropriate coverage (along with the scenario, according to Goodman, could right exclusionary language) as drones be an agricultural company using a drone increasingly to monitor move from activities in Unintentional privacy the theoretiits fields, but adjacent to incursions could be a problem. cal to the real world. one of those Setting aside an Amazon-esque scenario, fields is a drug treatment center. “As the drone flies past and records the video feed, a matter of more immediate concern may be the proximity of humans to a drone it may also record individuals entering and that is being actively piloted. As businessleaving that health facility,” says Goodman.

This type of unintentional privacy incur- es such as commercial farms and surveying firms develop plans to deploy drones as sion could have impacts down the line. part of normal operations, they must take “Where I would see problems from an great care to ensure that workers and insurer perspective is around these unforeothers are safe. What are the reasonable seen, unintended uses by a well-meaning and effective measures these companies employee or civil servant that ends up

should enact to create an environment that doesn’t present danger to nearby individuals? Agricultural businesses often control the ground their drones cover, but the same may not always be the case for surveying teams or utilities that must cross lands managed by others. Personal injury concerns related to the operation of drones are very real and something carriers must evaluate closely to minimize the risk of exposure.

Property Damage Property damage is another issue to consider, though insurers may find the remote-controlled airplane sector provides a useful blueprint. The changes are likely to stem from the sheer scale of use.

“Technology aside, this is something that’s falling into private hands and will be used more by companies and municipalities,” Goodman says.

Anything from trees to homes to power lines could potentially suffer damage from a drone, particularly as larger models become more widely available. Following the lead of remote-controlled airplanes, insurers may simply opt to add or amend policy language so that any device falling under the drone category is required to have the owner’s identification written or attached to the outside of the craft.

Widespread drone use may still be a bit into the future, but it is certainly coming.

Those insurers able to identify potential risks early will be in the best position to provide policyholders with the coverage they need while minimizing unnecessary exposure. CJ Cullina is chief executive officer of IDentity Theft 911.

Winter 2014 | Claims Journal 17

IDEA EXCHANGE | 2014 FORENSIC ENGINEERING DIRECTORY

2014

FORENSIC ENGINEERING DIRECTORY C

laims Journal is pleased to publish the 2014 Forensic Engineering Directory. This exclusive directory resource has been designed to help claims professionals find partners and services to enhance their ability to respond to disasters and better assist their clients. We look forward to expanding and enhancing this directory in the future and welcome your feedback on how we might improve it. Please send comments or suggestions to editorial@claimsjournal.com.

Amset Technical Consulting

Crane Engineering

1864 S. Elmhurst Road Mount Prospect, IL 60056

2355 Polaris Lane North, Suite 120 Plymouth, MN 55447

www.amsetusa.com fseter@amsetusa.com (847) 229-1155

www.craneengineering.com jeffb@craneengineering.com (763) 557-9090

Amset provides technical consulting to insurance professionals and attorneys in the investigation, analysis, and resolution of insurance claims involving electronics, equipment, and electro-mechanical machinery. Since 1996 Amset has earned an excellent reputation in the field of property and casualty claims for electrical & mechanical failure analysis, fire/explosion origin & cause investigations, vehicle fire investigations, cost analysis, electronics restoration, data recovery, laboratory examinations, and evidence storage.

For 35 years clients have trusted Crane Engineering to provide expert forensic engineering services for industrial applications, insurance subrogation and product liability litigation. With offices in Plymouth, Minn. and Madison, Wis., our divisions include forensic engineering, consulting engineering and laboratory services, fire science, building science, data forensics, motor vehicle testing and accident reconstruction

Armstrong Forensic Engineers

Donan Engineering Co., Inc.

17844 N. US Highway 41 Lutz, FL 33549 www.armstrongforensic.com info@armstrongforensic.com (888)330-6280 Armstrong Forensic Engineers is a national forensic services firm providing technical consulting to legal, insurance, and corporate clients. Our engineers are skilled in many disciplines and we are able to provide reconstruction, scientific analysis, and expert testimony regarding traffic accidents and all types of mechanical, biomechanical, civil, or electrical engineering failures.

With offices in Florida, Illinois, Texas, Michigan, and Utah we service the entire United States and offer rapid-response inspections. When you need to determine the facts and causes for an incident, and provide clear expert testimony, contact Armstrong Forensic Engineers.

18 Claims Journal | Winter 2014

11321 Plantside Drive Louisville, KY 40299 www.donan.com donan@donan.com (800) 482-5611 Donan Engineering is a multi-disciplined forensic consulting firm with professional engineers, fire investigators, and a component testing laboratory.

EFI Global

ITC Experts

8811 FM 1960 Bypass Road West Suite 400 Humble, TX 77338

10190 Airpark Dr Sugar Grove, IL 60554

www.efiglobal.com heather_suttle@efiglobal.com (281) 358-4441 EFI Global is a full-service engineering, fire investigation, and environmental services firm serving commercial, insurance, government, public and private entities. We provide a multidisciplinary team of scientists, engineers and fire investigators to aid clients in resolving technical problems. With a network of 30 national offices, 11 in Canada, and a global response team of more than 350 technical professionals, there is always an office or professional that can respond quickly to a project site.

www.itcexperts.com dshort@itcexperts.com (630)556-9700 20 Professional Engineers/Scientists with over 40 Degrees 20 Advanced Degrees 15 Disciplines 26 Professional Certifications Registered in 14 States Average 20 Years of Professional Experience 13 Years in Litigation and Insurance-related consulting Provided testimony in over 150 Trials and 500 Depositions Generated 19 Patents and over 260 technical papers Members of more than 40 Professional Societies Conducted more than 1200 projects

Exponent

LWG Consulting

149 Commonwealth Drive Menlo Park, CA 94025

3455 Commercial Avenue Northbrook, IL 60062

www.exponent.com ameyer@exponent.com (650) 688-6951 Exponent (formerly Failure Analysis Associates) provides independent science-based investigations involving accident and failures; product defect claims, environmental/toxic tort issues, construction disputes, personal injury and intellectual property claims. Through a full-time staff of 900 in 20 US and 5 international offices, we have expertise in 90 scientific and engineering disciplines, Exponent combines unparalleled technical expertise with the ability, when necessary, to focus this knowledge in extremely short time frames.

Haag Engineering 4949 W Royal Lane Irving, TX 75063 www.haagengineering.com haaginfo@haagengineering.com (214) 614-6500 Haag is a globally diverse consulting firm encompassing forensic engineering, construction consulting, geotechnical consulting, 3D laser scanning/BIM modeling and research/testing. Haag engineers have a wide range of expertise in all disciplines - civil, structural, architectural, mechanical, electrical, and metallurgical. We also offer outstanding educational programs, tools and publications. Haag is celebrating 88 years of serving not only the insurance industry, but manufacturers, attorneys, government entities, municipalities and corporations with our professional expertise.

www.lwgconsulting.com dskaff@lwgconsulting.com (800)326-5075 LWG Consulting is a global leader in forensic engineering & recovery solutions, providing technical consulting following disasters of all kinds. LWG has served the insurance, legal and risk management industries for over 25 years. Our experts travel globally from 20 offices located across the U.S., Canada, Latin America, the U.K. and Singapore.

Madsen, Kneppers & Associates, Inc. 100 Pringle Avenue, Suite 340 Walnut Creek, CA 94596 www.mkainc.com mkainfo@mkainc.com (800)822-6624 Madsen, Kneppers & Associates, Inc., a multidisciplinary construction consulting firm, provides creative solutions to the Construction, Legal and Insurance industries. Recognizing the unique needs of each client, our professionals utilize extensive industry experience and diverse skills to devise customized solutions. Our Architects, Engineers, Cost Estimators, Construction Managers, Schedulers, Roofing Consultants, Thermographers and Water Restoration Consultants form a highly skilled team delivering a broad spectrum of quality services and integrated solutions to our clients worldwide.

Winter 2014 | Claims Journal 19

IDEA EXCHANGE | 2014 FORENSIC ENGINEERING DIRECTORY

Nelson Forensics

Unified Building Sciences

2740 Dallas Parkway, Suite 220 Plano, TX 75093

209 E. Greenbriar Lane Dallas, TX 75203

www.nelsonforensics.com info@nelsonforensics.com (877)850-8765 Nelson Forensics, serving nationwide from strategically located offices in Texas, Florida, Georgia, Maryland, Maine, New York, Colorado, and California, is a progressive multi-discipline firm specializing in forensics and consulting. We are investigators who assess damage from perils such as hurricanes, explosions, fires, structural failures, and design and construction defects – typically within an insurance or legal setting. Nelson excels in Forensic Engineering (Civil, Structural, Mechanical, Electrical) Forensic Architecture, Accident Reconstruction, Environmental Science and Cost Estimating.

www.unifiedgroup.com ubsinfo@unifiedgroup.com (214)942-0385 Unified Building Sciences, Inc. provides consulting and forensic services for construction and property damage issues. These services include cost estimating, project auditing, building envelope analysis, project management, moisture detection, failure analysis, and destructive and nondestructive testing. Our expert consultants perform detailed inspections, investigations and cost analyses for hail and wind losses, fire damage, construction defects, and other building issues.

UBS provides these services nationwide and has physical office locations in California, Colorado, Texas and Georgia. UBS personnel respond immediately to major catastrophic events such as earthquakes and hurricanes, both nationally and internationally.

ProNet Group, Inc.

U.S. Forensic

1 Sugar Creek Center Blvd, Suite 200 Sugar Land, TX 77478

3300 West Esplanade Ave, Suite 601 Metairie, LA 70002

www.pronetgroup.com info@pronetgroup.com (800) 216-7268

www.usforensic.com info@usforensic.com (888) 873-6752

With ten regional offices located from Florida to California, ProNet Group has been providing forensic engineering and fire O&C consulting services since 1990. Engineering disciplines include structural, civil, mechanical, industrial, electrical, and automotive.

U.S. Forensic has built a strong reputation for providing concise, accurate answers to complex questions involving building failures, product failures, fires and automobile accidents. Our full time staff has assisted insurance companies, manufacturers, government entities and the legal community in evaluating the cause, extent and legitimacy of various claims, incidents and injuries from 25 service locations across the United States.

Rimkus Consulting Group, Inc. 8 Greenway Plaza, Suite 500 Houston, TX 77046 www.rimkus.com jeorr@rimkus.com (877)271-1168 Rimkus Consulting Group, Inc. is a worldwide provider of forensic consulting services to insurance companies, law firms, corporations, and government agencies. Rimkus assists clients in the responsive and timely resolution of claims and disputes. The company’s team of professional engineers, scientists, certified public accountants, and technical specialists is recognized for its commitment to service excellence by local, national, and international business communities.

20 Claims Journal | Winter 2014

VCE Investigative 2604 Foster Avenue Nashville, TN 37210 www.vceinvestigative.com jonathan@vceinvestigative.com (800)747-3844 VCE Investigative is a multi-disciplinary forensic engineering company. Since 1975 we have been performing professional investigations and providing expert witness services related to blasting/ vibration damage, structural investigations, sinkhole/karst, accident reconstruction, lightning and roof damage for our customers throughout the southeast United States. Our investigators have a unique combination of in-depth technical knowledge, extensive experience, and an ability to work well with people. We put these skills to work to bring our customers the very best in forensic engineering investigation services.

SPECIAL REPORT | LIABILITY

Traditional Insurance Products and Cyber Fraud Claims

By Peter S. Selvin

T

he recent data breach incident involving Target Corp. highlights the exposure that companies, and their officers and directors, have in connection with such incidents. Among the risks present in such a scenario include these: • Under the pertinent state and federal rules, a company whose data has been stolen or compromised will be liable for remediation-related expenses, such as costs associated with large charge backs, card reissuance, account monitoring and fines imposed by credit card companies.

• The company will also face liability, often in the form of class-action lawsuits, from customers whose personal information has been compromised. It will also face liability from the financial institutions who may be obligated to reissue their customers’ cards and reimburse them for fraudulent transactions.

• The company, and also its officers and directors, will face liability from its shareholders for failing either to prevent the data breach incident or accurately disclose its cyber security risks. Indeed, just a few days ago, shareholders of Target filed two shareholder derivative lawsuits against the company and its officers and directors.

Those shareholders claim that neither the company nor its officers or directors took reasonable steps to maintain its customers’ personal and financial information or to implement adequate internal controls to detect and prevent such a data breach.

Unexpected Protection To mitigate against these risks, the insurance industry has developed new cyber security insurance policies which are designed to address a number of liability situations, including a large-scale data breach. While these policies play a key role, some traditional insurance policies may provide unexpected protection.

For example, in one recent case a company that was victimized by computer hackers successfully obtained reimbursement for remediation-related expenses following a data breach under its blanket

crime policy, which contained an endorsement for computer and funds transfer fraud coverage.

Although the insurer denied the company’s tender, the company successfully sued the insurer for a determination of coverage in federal court.

The court held that under the company’s policy the insurer was responsible for reimbursing the company for its losses in connection with the theft of customer information.

In data theft cases, a company’s customers may bring civil claims against the company based on the violation of the customers’ right of privacy. Importantly, the personal injury coverage afforded under a standard comprehensive general liability (CGL) policy is often triggered by “injury … arising out of … oral or written publication…of material that violates a person’s right of privacy.” Although there are few reported cases which have dealt definitively with this issue, there are a number of cases which suggest that coverage for such customer lawsuits might be available in these circumstances.

Thus, in one recent case, the court found a violation of a customer’s right of privacy, and hence personal and advertising injury coverage under a CGL policy, where a vendor had failed to redact customer credit card information from receipts. In another case, the court found that tracking of website visits by an Internet service provider violated customers’ right of privacy and hence constituted a personal injury offense, thereby triggering coverage under the policy.

Where, as in the case of Target Corp., shareholders bring claims against the company or its directors and officers, directors and officers liability insurance (D&O) will often come into play. Such a policy might provide coverage for suits against a

company arising from a data breach where the policy provides entity coverage. Where such entity coverage is broad, it may encompass liabilities for privacy breaches and cyber risks.

D&O Coverage In the event that a company’s officers or directors are sued in connection with data breaches, D&O insurance would also apply. As reflected in the recently filed suits against Target’s officers and directors, the basic claim is that the company’s officers and directors breached their fiduciary duties to the company by failing to take reasonable steps to maintain its customers’ personal and financial information or to implement adequate internal controls to detect and prevent such a data breach.

Subject to specific policy, especially the policy’s exclusions, ordinary D&O insurance should provide in such an instance to the company’s officers and directors.

While traditional insurance policies are not an adequate substitute for the newer policies that are specifically designed to provide protection against instances of data breach or cyber fraud, attorneys and insurance professionals should be aware that there are circumstances in which such traditional policies may provide unexpected benefits. CJ Selvin is a partner with Los Angeles-based TroyGould, where he specializes in civil litigation and insurance coverage and recovery.

Winter 2014 | Claims Journal 21

SPECIAL REPORT | LIABILITY

Incident Site Management: The Importance of Managing and Documenting an Incident Scene

W

hen accidents happen, on a small scale such as a low-speed collision or on a larger scale such as an explosion, the amount of liability left in the wake of a mishap can be astronomical. A crucial aspect of forensic engineering is being able to properly

By Scott Nesvold manage and document an incident site.

Documentation is a critical component to scene incident management. Using photographs, 3D laser scanning, which preserves site geometry and object location, measurements and both overhead and ground video are critical first steps.

An initial structure damage assessment is a three step process: Identification of building location, rapid assessment of affected area and identification of buildings that require further assessment. The epicenter, or the center of the explosion or event, is the focus of incident investigation and the center of damage liability determination.

However, there are many other areas that

require attention including collateral damage assessment and structural triage.

Following a catastrophic or disastrous event, often the focus is on the origin of the event and investigating the cause and, if it is not a force of nature, assigning liability. In many cases, this is just the tip of the iceberg with respect to the liability and damages incurred by the responsible parties. The collateral damage associated with an explosion can far exceed the losses at the origin of the event. The timing of determining liability is often measured in months and years; long after the secondary damages have been torn down, repaired or painted over and the opportunity for documenting the actual damages has long passed.

Collateral Damage Assessment To best prepare for the need of defending against inflated claims and incurring repair costs of unassociated damage claims, a comprehensive damage assessment should follow the event as immediately as possible to determine what damage is truly resulting from the event and to devel-

op a reasonable scope or repair.

It is essential to deploy a team of professionals capable of assessing the damage to buildings and determining whether the damage is associated with the recent event. This damage assessment team can be deployed concurrently with an incident origin and cause investigation team.

Professional expertise might include: • Structural engineering to determine structural damage and offer repairs to either temporarily support or for permanent repair of the structure.

• Architecture to diagnose building failures and damage due to materials, codes or contract issues resulting from design, construction defects or maintenance deficiencies, operations, weather or other factors.

• Mechanical engineering to determine the extent of damage incurred by the HVAC and mechanical systems, including rooftop units, cooling towers, duct work and fire dampers.

• Geotechnical and construction materials engineering to assess the damage to foundations, interpret soils behavior,

Photo taken by Crane engineer, Scott Nesvold, observing the rebar failure patterns at a structural collapse.

22 Claims Journal | Winter 2014

and determine material related damages.

• Fire protection engineering and experience investigating explosions to assist in determining the expected level of damages associated with the forces developed as a result of a particular incident.

bled and deployed to quickly categorize and summarize the damage observed and to develop a list of buildings, initial damage, access equipment needed, and investigative personnel required. This information will streamline resources and provide an efficient means of documenting the buildings affected and unaffected by a large loss catastrophe.

tion of evidence and schedule for investigation.

It is very important to assemble a team of structural engineers trained and equipped to provide structural shoring designs tailored for assisting with investigations. The structural shoring team Structural Triage should be knowledgeable in investiga A large loss event can be caused by tion techniques, including the Scientific natural means (tornado, hurMethod, and have extensive forensic ricane, earthquake, landslide Assessment and documentation are engineering background. The team or sinkhole) or by human can be deployed to provide an early best done immediately to determine response assessment of structural activities (fire, explosion). In any case, the assessment and stability, shoring design to prevent associated vs. unrelated claims. documentation of structural further collapse, and work with damage and building related damage to the contractors on large evidence extraction affected region are often best accomplished Structural Shoring Following Collapse all while maintaining a scene-preservation immediately following the event to provide Fire and explosion investigations are minded focus. CJ the best determination of associated versus invariably associated with structural damage and collapse. Consequently, the origin unrelated damage claims.

Nesvold, M.S., M. Eng., P.E. Crane Engineering and cause investigation is often focused in A structural triage, in which a rapid Structural/Fire Protection Engineer, is a structural an area with potential structural instabiliassessment is performed to determine the and fire protection engineer with more than 10 best use of resources and timing of damage ties. years of experience. He provides expert consulta Partial or full demolition of the building assessments, is imperative. tion regarding building design, structural analysis can have negative impacts on the preserva A small, quick response team is assemand failure and fire protection engineering.

We’ll tell you What “ it ” is.

U.S. Forensic has built a strong reputation for providing concise, accurate answers to complex questions involving building failures, product failures, fires and automobile accidents. Our staff of over 50 professionals have assisted insurance companies, manufacturers, government entities and the legal community in evaluating the cause, extent and legitimacy of various claims, incidents and injuries.

T (888) 873-6752 F (888) 436-3092 www.usforensic.com Austin Charlotte Columbia Dallas Destin Hattiesburg Jacksonville Lafayette Memphis Miami New Orleans Orlando Picayune Tampa West Palm Beach

USFORE16415.indd 1

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Winter 2014 | Claims Journal 23

SPECIAL REPORT | LIABILITY

The Rising Score of Youth Sports Head Injury Claims

By Denise Johnson

L

rates were noted more frequently in children with a history of prior concussions and in female athletes.

The report found that while the typical concussion recovery rate among young athletes was about two weeks, in 10 to 20 percent of cases symptoms could continue for weeks, months or even years.

ets are always an issue with litigation. I think it’s going to be particularly apparent with youth sports, because a lot of park districts and schools will be protected or protected to some degree by governmental immunity, and so they won’t be a viable target for a lawsuit,” Dusek said.

ast year, the NFL agreed to settle a concussion lawsuit filed by former players for $914 million. As concussion-related lawsuits continue to be filed against professional sports teams, equivalent claims and litigation will soon be seen in Impacted Lines a variety of youth sports and The claims could impact non-professional organized Concussions are more common in high several lines of insurance, sports leagues, according schools than colleges in certain sports. according to Dusek. A medto partner Robin Dusek, a ical malpractice claim could member of Freeborn & Peters arise if a doctor failed to properly diagno Dusek, a Chicago-based attorney, said Insurance/Reinsurance Industry Team. sis a head injury and allowed an athlete to insurers should prepare for increasing A study released last year by the return to play. A homeowners’ insurance claims arising from players and their Institute of Medicine (IOM), which claim could arise as a result of a coach families against non-professional sports focused on young athletes aged 5-to-21 being sued for his or her alleged role in an leagues, including high school and junior years, found that concussions rates were injury claim. high football, soccer, hockey, rugby and higher among high school athletes than “Individual coaches may be sued lacrosse. college athletes in certain sports, includbecause a lot of coaches will have home “We live in a litigious culture. There’s ing football, men’s lacrosse, soccer and owners’ policies or other umbrella policies more awareness of this as a problem. I baseball. that protect them from liability. Or prothink that’s going to cause more people to Concussion rates were also typically tect their exposure to liability, I should take action and make them see it looking higher during competition than in pracsay. Doctors who don’t take the necessary a lot of different ways because deep pocktice, except for cheerleaders. Concussion 24 Claims Journal | Winter 2014

steps to make sure a kid doesn’t have a concussion and then it turns out they have a concussion and they play and they get hit again and maybe have a more lasting impact because of that,” said Dusek.

Even with the possibility of governmental immunity, the Freeborn & Peters partner expects school districts will continue to be targeted.

“I think you may see some suits against school districts that, to get around the governmental immunity are alleging more willful or wanton acts against the school district; that they should have known and the fact that there’s not a trainer on the sidelines, for example, during practice.

That’s something that is not just negligent, but rises to a level that’s beyond negligence to try to get around the governmental immunity protection that a lot of schools will have,” Dusek explained.

Director and officer liability policies could also be implicated.

“If you look at, I guess a situation where a school board hasn’t authorized enough trainers to be available for games and practices or they know that there’s a coach that is known to take risks with players and they don’t replace him or her. I think that’s certainly an area of exposure with school boards and with universities, with

their board of directors and those types of situations,” the Chicago-based attorney said.

Insurer, Governmental Response According to Renee Callantine, a San Francisco-based attorney, claims for bodily injuries could present a variety of coverage issues, depending upon who the claim is made against and the policy under which the claim is tendered.

“For instance, if a claim is made against a coach or manager for personal injuries by a player, the claim may be tendered under a homeowners’ policy. This type of policy provides coverage for bodily injuries but, as relevant here, will typically contain exclusions for business pursuits and professional services,” Callantine said. “The former applies to claims arising out of any business engaged in by the insured and business is interpreted broadly to include full or part-time activity engaged in for profit or gain.”

Callantine, who specializes in insurance coverage, said that the “professional services” exclusion bars coverage for injuries arising out of the rendering or failure to render professional services.

“Again, most states interpret professional services broadly as an activity normally undertaken for pay. Both exclusions would apply to claims made by coaches and others employed by schools to oversee the sports activity.

The exclusions might also apply to voluntary coaches, as both have been found applicable in cases where the activity is undertaken free of charge, although the applicability in that scenario is a little less clear and will vary by jurisdiction,” said Callantine.

She said claims tendered under a school or organization’s policy will be analyzed differently because those policies will not contain business pursuits or professional services exclusions. But the exclusion for “expected or intended” injuries may apply, depending on the facts of the case. continued on next page

Surviving Multiple Concussions

A

ccording to the Children’s National Health System, a national children’s hospital, a concussion or mild traumatic brain injury is used interchangeably to define a disruption in the function of the brain as a result of an indirect or direct forceful blow to the head. The hospital’s website indicated that more than three million children sustain a concussion each year with increased frequency in certain sports, such as football, ice hockey, soccer, rugby, lacrosse, basketball and wrestling.

Alexis Ball, a former University of New Mexico soccer player who sustained more than 10 concussions throughout high school and college, testified before Congress in 2011 on the subject of concussions and sports equipment marketing.

“I had already accumulated 10 concussions in about 8 years, most of which while wearing protective headgear. The

doctor concluded that for the safety of my future, I should hang up my cleats,” said Ball.

“If an athlete tears their ACL or sprains their ankle, it is apparent externally that they are injured. This is not the case with concussions,” she said.

Ball said many of the symptoms of post-concussion syndrome are not typically associated with the initial blow, noting that she did not correlate her insomnia or sadness with the injury she had months prior.

She said awareness must be raised among athletes of the limited efficacy of helmets. Despite wearing protective headgear ever since her second concussion, she still sustained eight more.

Robin Dusek, a partner and member of Freeborn & Peters Insurance/Reinsurance Industry Team, said awareness is growing

among parents and coaches regarding concussion severity.

“If you don’t let the first concussion heal, a second concussion can…cause severe brain impairment. That’s something that I think is more recognized now.

Parents and athletes are going to hold coaches and trainers to a higher standard in terms of making sure their kid or they are not one of those people who suffer the second impact type concussion,” said Dusek.

Another issue Ball dealt with was the “get back into the game” mentality.

“I continued to play much longer than I probably should have, due to the high number of concussions I had throughout my career. And I most certainly returned to play too quickly. People have only one brain for life. I will never regain the visual memory I once had,” said Ball.

Winter 2014 | Claims Journal 25

SPECIAL REPORT | LIABILITY

continued from page 25 “[W]here the claims are brought against the directors and officers of an organization, they will typically be excluded from coverage under the standard D&O forms.

This coverage is not intended to apply to bodily injury exposures and are typically specifically excluded,” Callantine added.

Other issues, according to a Marsh update on the subject last year, include multiple policy triggers, allocating claims to appropriate policy years and negotiating coverage agreements with multiple insurers.

Marsh noted that insurers could seek to challenge coverage based on whether an injury occurred during the policy term, the “expected or intended injury” exclusion, lack of an “occurrence” and known risk defenses. alleged. Whether the school or the coach injuries. or whoever’s being sued was acting within School Exclusions AIG insures more than 5,000 athletic the sphere of what should be expected or As sports-related claims and litigation organizations and sport camps, providing were they being extra negligent or what rise, concussive injury exclusions will participant coverage, risk management the specific facts are,” said Dusek. “What begin to show up in school insurance poli- services and liability insurance. The comit seems to me, and this is a general statecies. pany instituted a program called aHead of ment and individual cases can differ, if “I think that actually the insurance com- the Game, which provides education and it’s outrageous enough or if the damage is panies can play a role in making sports risk management to coaches, parents and terrible enough, courts tend to find ways safer for participants because they can athletes. around a release.” impose exclusions, impose certain require- Wells Fargo also initiated a program for Some fear that overwhelming litigation ments for making sure sideline tests for schools and youth programs it insures. concussions are available or requiring that Play It Safe Concussion Care provides con- against school districts and small youth organized sports teams could lead to the there has to be a certain number of traincussion testing and coverage for players. end of non-professional youth sports. But ers available,” Claims could be made against doctors, Dusek does not expect that to happen.

Dusek said.

Besides addschools, executives, even homeowners. “It’s going to be interesting to see what plays out with this. I think there’s certaining exclusions to ly a lot of, in our culture there’s a lot of policies, insurers could raise premiums or Dusek said other measures insurers people who see value to kids participating impose safety requirements, the Freedman could take include defining what is and in sports, and there is value to kids particand Peters partner said. isn’t an occurrence and imposing aggreipating in sports. I think right now we’re “I think the insurance field can actually gate limits. Governmental entities could at a point where we don’t know enough potentially make sports safer. I think they consider imposing damage caps. about how to protect adults or children will use their ability to write in exclusions from lasting brain injury from their paror write in requirements, increase premiReleases and Waivers ticipation in sports,” Dusek said. “As we ums for school districts or park districts What about signed releases or waivers? know more that may allow sports to conthat don’t have certain precautions in “I’ve looked at the impact of releases in place, that their premiums will be higher general in sports and whether athletes can tinue as they have been with maybe different helmets or different rules in place. But than another school district that has a lot sue for things that are arguably released.

I do think it will have an impact, certainmore precautions in place. I think that the It really is just going to be a case-by-case insurance world will make a difference in analysis,” said Dusek. “Whether the release ly, on the number of children participating in sports like football and hockey and how all this plays out. My hope is actualreally would be read by a common perpossibly lacrosse, rugby, soccer.” CJ ly that it makes a safer environment for son to cover whatever damage is being those participating in sports,” said Dusek.

Some insurers have already begun proGo to ClaimsJournal.com to answer this related poll question: grams to address sports-related concussion Will the risks associated with concussions in sports end casual organized sports?

26 Claims Journal | Winter 2014

IDEA EXCHANGE | ESSENTIALS

Wisconsin Supreme Court Redefined the Boundary Lines of Occurrences

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ecently the Wisconsin Supreme Court was also set up for parties. The party narrowed the concept of “occurrence” portion of the shed was furnished with couches, chairs, a table, a Ping-Pong table, as defined in homeowners policies. a CD player and a refrigerator.

In Schinner v. Gundrum, 349 Wis.2d 529, Alcohol was prevalent at the party.

833 N.W.2d 685 (2013), the court held the Some of the guests brought their own insured’s actions in alcohol, including underage guests who setting up an isolated were expected to obtain alcohol from peoshed for a drinking ple who were of legal drinking age. The party, procuring alcohol insured also purchased two cases of beer and expecting others to for a friend and himself. The beer was bring alcohol, inviting many underage guests to kept in the refrigerator in the shed which the party, and encourag- was available for people who did not bring

By Steven Plitt their own alcohol to the party. One of the ing the underage guests party games was “beer pong” which utito drink were intentional actions that violized the Ping-Pong table in the shed and lated the law. The insured’s many intenencouraged more alcohol consumption. tional wrongful acts were a substantial Cecil was one of the underage intoxicatfactor in causing bodily injury to a guest ed guests who participated in beer pong. who attended the party. Viewed from the He was known prior to the party by the standpoint of a reasonable insured, the insured and others to have a propensity to court held that the insured’s intentionbecome belligerent when intoxicated. The al actions created a direct risk of harm resulting in bodily injury, notwithstanding insured testified that he knew from previous occasions that Cecil would become the insured’s lack of intent that a specific confrontational, had a history of picking injury would occur. As such, the victim on weaker kids, and used inflammatory guest’s bodily injury was not caused by a language when intoxicated. defined “occurrence” within the meaning At the party, Cecil assaulted a guest by of the homeowners policy. punching him twice in The facts of the face and then kicking the case estab‘When an insured’s him in the head after the lish that the intentional actions guest had fallen to the insured hosted a party in a shed create a direct risk of ground. The guest was injured in the at the location harm, there can be no seriously assault. The injured guest of Gundrum sued the insured and his Trucking. Other liability coverage.’ insurer, West Bend, for parties were the injuries received at the party. hosted by the insured at the shed in the past. The insured invited guests by texting No Occurrence friends about the party with the expecta Procedurally, the Circuit Trial Court tion that the friends would, in turn, text granted West Bend’s motion for summary and tell others so that the party would be well attended. On the night in question 40 judgment concluding there was no occurrence because the insured’s conduct in partygoers came to the shed for the party. providing alcoholic beverages to underage The insured estimated that 40 to 50 perpersons was intentional and therefore was cent of the guests were underage. not an occurrence. The Wisconsin Court of The insured’s extended family stored Appeals reversed the Circuit Trial Court personal items of property in the shed. finding that the assault was an accident Some of the items in the shed, snowmofrom the injured guest’s standpoint and biles, were insured under a homeowners therefore coverage was triggered under the policy. The shed was referred to as the homeowner’s policy. The issue then came “toy shed.” However, a portion of the shed

before the Wisconsin Supreme Court.

The Wisconsin Supreme Court began its analysis by determining from whose standpoint an alleged action should be viewed: the injured party or the insured.

After reviewing prior case law, the court held that “when an insured is seeking coverage, the determination of whether an injury is accidental under a liability insurance policy should be viewed from the standpoint of the insured.”

Next, the court addressed whether an accident had taken place. Reviewing prior Wisconsin case precedent, the court concluded that an “accident” was “an unintentional occurrence leading to undesirable results.” Using that definition of “accident,”

the court concluded that the insured’s actions did not constitute an accident.

The Wisconsin Supreme Court then moved forward in its analysis to determine: What was the injury causing event in the case? Was it Cecil’s assault on the guest or was it the actions of the insured in hosting the party? The court noted that the injured guest had alleged that the wrongful conduct of the insured had caused the bodily injury. There was no question that Cecil intended the assault.

Intentional Act The court found that the allegations of the injured guest’s complaint as well as other evidence made it clear that the insured took a number of intentional actions that ultimately caused the guest’s injury. The insured intended to host the party and, based on the experience from an earlier party he hosted, the insured continued on next page Winter 2014 | Claims Journal 27

IDEA EXCHANGE | ESSENTIALS continued from page 27 intended that the “individuals he invited would invite other youths, who would in turn invite others.” The insured intended that minors attend his party. The insured “knew and expected that a substantial number of individuals” were under the legal drinking age and that the underage attendees would consume alcohol made available to them at the party. By making the arrangements for beer pong throughout the evening, the insured actively promoted heavy drinking at the party. This conduct violated Wisconsin law.

In addition, the insured knew that Cecil was an underage individual who became belligerent when intoxicated.

Nevertheless, the insured “encouraged, advised and assisted Cecil in his consumption of alcohol.” The insured’s actions in hosting an underage drinking party and in procuring alcohol for Cecil and others were intentional. In short, the insured’s actions were entirely volitional. As noted by the court, the insured “did not host the underage drinking party by mistake,

COH16720.indd 1

28 Claims Journal | Winter 2014

against his will, or by chance.”

The court stated that “[a] result, though unexpected, is not an accident; the means or cause must be accidental.” The court found that “the means or cause” of the guest’s bodily injury was not accident.

“The intentional, illegal procuring and serving of alcohol to Cecil exposed [the guest] to harm. [The insured’s] many intentional acts were a substantial factor in causing [the guest’s] bodily injury.” The events leading up to the bodily injury were not remote and were not accidental.

Although the court noted that as a general rule, where an insured acts intentionally to cause bodily injury to another, insurance coverage for the injury is typically not available, the court also noted that the case facts presented a more difficult situation to decipher because the bodily injury was not intended and there was no certainty that the bodily injury would have occurred.

On the other hand, the court noted the bodily injury was hardly unforeseeable.

“All the conditions for a tragic injury had been put in place, and they were put in place intentionally.” The Wisconsin Court noted that “when an insured’s intentional actions create a direct risk of harm, there can be no liability coverage for any resulting damage or injury, despite the lack of an actual intent to damage or injure.”

Justice Bradley dissented. Although Justice Bradley agreed with the majority holding that the determination of what constituted an “occurrence” was to be analyzed from the standpoint of the insured, Justice Bradley concluded that there was nothing in the record to suggest that the insured intended the assault or any subsequent injury to the guest. Therefore, the assault was unintended and was an “accident” constituting an “occurrence” under the policy. CJ Plitt is a nationally recognized expert in insurance law. He has authored numerous insurance treatises and articles. He has a national expert witness practice. Email: SP@kunzlegal.com

1/16/14 9:43 AM

DEPARTMENTS

ADJUSTER TOOLKIT Go Figure App

This mobile app promises to change the way building cost estimates are completed.

The Go Figure mobile app was created by a team of estimators and the owner of a Massachusetts-based construction company who discovered that materials delivered to jobsites are often erroneously calculated by their sales force. Since adjusters use these estimates to get the correct quantities of materials needed, the owners of Construction Solver said the app will help to eliminate inflated cost proposals cutting down on insurance industry cost payouts.

An adjuster can use the app by taking photos with an iPad of the damage that needs to be quantified. The app adjusts the measurements by autoscaling with the placard used in the photo. A drop down box then lets the user select the material and determine the size, while outlining areas damaged and in need of repair. More than 100 items and materials can be selected. A roof tool allows users to select rake and eaves. The app can be used on residential and commercial buildings. A stock list of materials can be emailed to the user and there is a worksheet for adjusters with cost figures they can use to generate an estimate.

“You don’t need a tape measure,” said Chris Farnell, one of the founders of Construction Solver. He said the app provides a safer way to estimate buildings without climbing ladders. In addition, it completes estimates in a fraction of the time they normally take.

The company is offering introductory pricing at $29.00 per month, including the placard and tech support. The mobile printing package is being offered as a one-time purchase of $299.

The Coverage Pointers App In August 2012, following the success of a twice monthly newsletter sent to subscribers for the past 16 years, Hurwitz & Fine attorney Dan Kohane, created the Coverage Pointers App. Kohane, an insurance coverage attorney based in Buffalo, N.Y., wanted to provide additional access to the popular email newsletter.

The app provides New York State appellate decisions relating to insurance coverage as well as a review of key federal and state decisions on bad faith and insurance coverage.

The free app is currently available in the Android Marketplace.

Website: www.gofigureapp.net

Website: www.hurwitzfine.com

Register now for the

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Winter 2014 | Claims Journal 29

IDEA EXCHANGE | BEST PRACTICES

How to Improve the Valuation of Flooring Losses

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istorically, assessing the “like kind and quality” (LKQ) attributes of floor coverings that have been damaged by flood, fire, mold or other peril, has posed many challenges. Myriad private labeling programs at the retail level also exacerbate the “accuracy” dilemma for all involved in the process. It is very typical to find the exact same flooring at various retail shops at differing prices.

By Steve Leger Expediting the valuation process is critical. By adopting an on-site valuation protocol, the process can be done in a fraction of the time that it takes to conduct a conventional lab evaluation. This also allows the policyholder an opportunity to understand how the valuation is conducted.

The Challenges There are few resources available to help adjusters calculate an appropriate floor covering replacement cost. Some insurance companies continue to send a piece of the flooring to a specialized laboratory to help determine LKQ valuation, even though it can take up to a few days to obtain the result. In an effort to save time and costs, some adjusters simply call on past experience to make a subjective opinion on the LKQ and resultant valuation.

This practice can be problematic.

Floor coverings typically follow the standard 80/20 rule in terms of product identification and valuation for LKQ — 80 percent of content or structural components in a home fall in the “middle of the road” price range, where the remaining 20 are unique. These outliers present the greatest risk in terms of valuation and settlement.

For example, 90 percent of all carpets fall into the average retail price range — so the great majority of carpets are tufted vs. woven, have basic synthetic backings, and are made of standard fibers such as nylon or polyester. The remaining 10 percent are the ones that are extremely unique or made of wool and other expen30 Claims Journal | Winter 2014

sive blends. These unique floor coverings in particular need to be evaluated with great scrutiny.

One of the main reasons why policyholders push-back on the valuation of damaged flooring is when there is little transparency in evaluating the loss. By offering a way for the policyholder to engage in the process of identifying and evaluating the damaged flooring, adjusters can reduce litigation exposure and improve the customer claim experience.

An effective way to do this is to carry out the valuation process at the site of the loss. An on-site valuation process allows the customer to view, if not actually participate in, the logical process of identifying the various manufacturing characteristics of the damaged flooring.

This can be done through a logically designed deductive reasoning process whereby the assessor answers a series of identification questions on a webbased device about the manufactured attributes of the damaged flooring. Each answer reduces the potential matches until the system reaches a final conclusion.

Customers appreciate knowing the flooring allowance early in the claim, so they can move forward with the completion of the restoration and make more informed decisions throughout the restoration process.

New Technologies In order to bring the valuation process on-site, insurance professionals must explore newer technologies including flooring category reference materials for visual identification and web-based deductive reasoning logic technologies.

They must include a vast database of floor

covering manufacturing statistics with verifiable retail pricing for local market accuracy and like kind quality matching.

Today’s leading valuation technologies can send a report immediately to the adjuster via email, as well as aggregate the data for more in-depth management reporting analysis. Ideally, the program also pulls in preapproved flooring retailers who can adhere to the systems’ pricing conclusion and assist the policyholder to returning to a pre-loss state.

With such systems, the on-site valuation process can be conducted by a trained property damage restoration provider or the adjuster. The technologies that calculate flooring pricing based on visual and mathematical modeling significantly improve acceptance of the valuation and decrease the settlement cycle. Most importantly, because the process is defensible and logical, policyholders are much less likely to pushback on the results and extend the claim process and associated costs.

Steps to Improve the Valuation Process 1. Reduce the assessment time to minutes rather than days. Conduct the LKQ assessment at the loss-site by a trained restoration contractor, adjuster or flooring retailer with a well-designed deductive reasoning system and database.

2. Local market retail price accuracy.

Consider a system that employs a basis of manufacturing costs as the fundamental layer but also uses real-life retail pricing that takes private label pricing programs into consideration.

3. Improve the customer claim experience.

Utilize a system that will allow the policyholder to get involved and see or experience the assessment process. CJ Leger is the president of LKQ Technologies (www.LKQtech.com). Email: sleger@lkqtech.com.

IDEA EXCHANGE | BEST PRACTICES

Why Digital Dictation Works Best

By Steven Fasano

A

t many small insurance firms, investigators still record reports and interviews using analog devices, namely portable magnetic tape cassette recorders.

As recording technology has evolved from analog to digital, however, cassette tapes and tape recorders have become harder to find, and they are much more expensive. Firms need a new way to record and manage their interviews and dictated documents, without severely affecting their productivity or budget. In short, transitioning from analog tape to digital dictation is long overdue.

Firms should also not be concerned about digital dictation disrupting current analog tape-based workflows. The resulting workflow is more efficient because it removes wasteful steps, and it allows investigators to complete more reports in the same amount of time. They are also able to eliminate the expense and inconvenience of analog tapes.

to retrieve an old recording at the request of a carrier or attorney, finding the specific interview or dictation is time-consuming and tedious.

The transcription workflow also improves efficiency for the entire organization. With digital, instead of passing tapes affixed with paper notes around the office, investigators can upload recordings from their handheld devices through a docking station that attaches to their computer.

Transcriptionists then access the dictations or interviews from a centralized folder system automatically routed into the transcription software. Recordings are individually identified by the report and investigator. They are also time-stamped and prioritized.

Typically within less than a few weeks, investigators and office support staff find the new workflow is more intuitive, so managing and sharing recordings is faster and more efficient.

Highly mobile investigators will enjoy that many of the handheld digital recorders are powered by a rechargeable battery and some manufacturers even facilitate charging the recorders with your smart phone charger.

The ability to upload recordings when on-the-go or from home also helps improve productivity. Traditionally, creating reports is a longer process because tapes need to be copied and mailed, or they are delayed until the investigator brings the tape to the office. With digital, if a carrier or attorney wants to hear an interview, investigators can attach it to an email or electronically transfer it to a secure server.

Audio recording clarity from a high-quality handheld digital device is also far superior to magnetic tapes and the audibility never degrades over time.

For adjusting firms of all sizes, the switch from analog tapes to digital voice technology will improve the efficiency and convenience of their work, while eliminating costly cassettes and antiquated devices. CJ Fasano is the owner of Criterion Claim Service Inc. in Monmouth County, N.J.

Inconvenience of Analog Tape A reluctance to switch to digital dictation could be based on unfamiliarity with the technology and the potential investment in new recorders and transcription software. Maintaining the status quo with a firm’s current analog tapes and equipment, however, continues to become more expensive.

Maintaining magnetic tape is also a nuisance because it deteriorates after several years, degrading in audio quality and voice clarity. In addition, insurance regulations and a firm’s internal policies may require the retention of cassettes for a variety of time periods — as long as 20 years for a case involving a child, for instance.

As a result, insurance firm offices have storage cabinets filled with thousands of archived tapes, each affixed with a label describing the case and the recording content. On the rare occasion a firm needs GREENDL001.indd 1

Winter 2014 | Claims 1/27/14 Journal 9:59 31AM

IDEA EXCHANGE | BURKE’S LAW

Extrinsic Evidence and the Duty to Defend

T

The Texas Supreme Court held that “where the complaint does not state facts sufficient to clearly bring the case within or without coverage… the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy.” Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008). Texas courts have generally applied this rule strictly and the state’s highest court has refused to adopt an exception to its eight-corners rule. But the court seemingly left the door open for an exception under the right circumstances by referencing an exception recognized in other states.

The Fifth Circuit capitalized on the loose references from the Texas Supreme Court and decided that Texas law supported a limited exception to the eight-corners rule and that the facts in Star-Tex were ripe for applying that exception. The court recognized the general rule in Texas, and despite direction from the Texas Supreme Court to “resolve all doubts regarding the duty to defend in favor of the duty… and to construe pleadings liberally,” the Fifth Circuit departed from this directive, finding that in this case the factual allegations in the pleadings were so limited that it Insurers should understand could not determine if the claim would covered. the limited exceptions that be According to the court, the pleadmay be available. ings triggered a potential exclusion in the policy but contained no further details and lacked crucial facts relating Texas has utilized an “eight corners” to causation. The court reasoned that the rule in determining whether an insurer’s circumstances favored application of the duty to defend is triggered, looking only narrow exception previously referenced at the terms contained within the “four by the Texas Supreme Court, though never corners” of the insurance policy and the adopted. The exception permits the use of allegations contained within the “four extrinsic evidence but “only when it is inicorners” of the complaint to determine tially impossible to discern whether covif there is a potential for coverage and erage is potentially implicated and when thus a duty to defend. “Facts outside the the extrinsic evidence goes solely to a pleadings, even those easily ascertained, fundamental issue of coverage which does are ordinarily not material to the determinot overlap with the merits of or engage nation and allegations against the insured the truth or falsity of any facts alleged in are liberally construed in favor of coverthe underlying case.” Within these limited age.” GuideOne Elite Ins. Co. v. Fielder Rd. parameters, the court added some flexibilBaptist Church, 197 S.W.3d 305 (Tex. 2005). he insurer’s duty to defend its insured is broad and is generally triggered whenever a complaint against an insured potentially implicates coverage under the policy. Jurisdictions vary as to how they approach the duty to defend. While some states have allowed the insurer and insured to reference prior knowledge and extrinsic facts to determine if the insurer’s duty is triggered, other states have restricted the inquiry

By Burke Coleman to the allegations contained in the underlying complaint.

A recent decision from the Fifth Circuit Court of Appeals further defined the court’s approach to identifying when an insurer’s duty to defend is triggered, and follows a recent trend to allow the use of extrinsic evidence in limited circumstances to determine the insurer’s defense obligations. In Star-Tex Resources, LLC v.

Granite State Ins. Co., 2014 U.S. App. LEXIS 365, the court softened Texas’ strict application of the “eight corners” rule and held that where the pleadings contain insufficient information to determine if coverage exists, courts may look to evidence beyond the pleadings to determine if an insurer has a duty to defend.

32 Claims Journal | Winter 2014

ity to the rule and rounded out the facts, enabling it to better analyze the policy exclusion at issue and ultimately relieve the insurer of its duty to defend.

While courts appear to be favoring certain reasonable exceptions, those exceptions remain limited and some courts are working to prevent the complete erosion of the eight-corners rule. In Bresee Homes v. Farmers Ins. Exchange, 293 P.3d 1036 (Ore. 2012), the Oregon Supreme Court refused to acknowledge an exception to its eight-corners rule on the basis of ambiguity in the complaint and stated that the analysis should focus solely on the “policy and the underlying complaint” with “any ambiguity concerning potential coverage [being] resolved in favor of the insured.”

As courts continue to refine their analyses regarding extrinsic evidence and an insurer’s duty to defend, insurers should understand the limited exceptions that may be available for otherwise strictly applied rules. While many jurisdictions continue to look primarily at the pleadings, the recognized exceptions can be beneficial to defining the parties’ obligations, particularly as courts become more receptive to reasonably tailored exceptions. CJ Coleman is legal counsel and compliance manager for Demotech Inc. This article is for informational purposes only, is not intended as legal advice, and is not a substitute for independent legal analysis and advice on a particular issue. Email: bcoleman@demotech.com.

IDEA EXCHANGE | FINAL OFFER

Erasing the Abuse of Unlicensed Public Adjusters

T

hey surface in the wake of any catastrophe or run-of-the-mill claim generating event. Contractors, tradesmen, restoration companies or others emerge, offering not only to repair damage to homes or property, but to also negotiate on behalf of the policyholders with their insurance company.

The proposition

By Jason Wolf offered to policyholders by these unlicensed or “non-public” adjusters is enticing at first glance. They promise insureds that they’ll handle the entire process — beginning with estimating the damage through to claim handling to repairs to ultimate settlement with the carrier. This would leave the policyholder unburdened by the perceived hassle of haggling with the insurance company.

Yet, it’s never that easy. Nor, in many states, is it legal.

Incidents of fraud and both frivolous and legitimate lawsuits stemming

They have no fiduciary duty to the policyholder, and are bound by no professional regulations. Often, the only penalties they may face could be civil claims by the homeowner or property owner, or — if they commit fraud — possible criminal charges.

Unlicensed public adjusters who also serve as contractors are motivated strictly by profit, not by aiding their insured client. Since they effecAddressing the presence and tively “double-dip” in the insurpractice of unlicensed or ance proceeds, claiming both a non-public adjusters is critical. commission on the insurance proceeds and a fee for the work delivered, no guarantee ensures the work from non-public adjuster abuse drive up will be completed. As has been seen in insurance premiums — and the cost of many markets following catastrophes, doing business for private and corporate many are opportunists who arrive, collect policyholders. Addressing the presence their proceeds, and move on to the next and practice of unlicensed or non-public catastrophe. adjusters is critical to protecting homeowners and property owners from abusive Education and Self-Policing practices or even fraud.

How can the industry help protect poli In a majority of states, public adjusters cyholders from potential abuse? Education are regulated professionals who undergo and awareness are the best defense. It’s training, examination and certification to vital that policyholders understand the ensure adherence to specific professional rules in their own states. Regulations regulations. Practitioners must receive differ according to state law, but there are ongoing, continuing education in state some consistencies. In many states, public insurance regulations to maintain their adjusters: licenses. Should they stray, they are sub• Must be state licensed and undergo ject to state punishment or penalties. recurring, continuing education to main Unlicensed public adjusters undergo tain their licensure. They are trained to no training, examination, certification or read insurance policies, know state insurreview by state regulatory authorities.

34 Claims Journal | Winter 2014

ance code and policyholder rights, and how to best represent the policyholder.

• Cannot legally represent a policyholder in an insurance claim and perform the work in question. In Florida, for example, this is expressly prohibited.

• Face possible regulatory discipline, including denial, suspension, revocation or refusal of renewal of a license if they violate the state’s public adjuster regulations or code of ethics; non-public adjusters face no such actions.

Addressing and curtailing practices and abuse by unlicensed public adjusters requires industry-wide action. While policing the industry often falls to state regulators, in reality few agencies have the manpower or funding to effectively regulate the industry. Therefore, public adjusters, insurance industry attorneys and even contractors and restoration companies must take the lead in self-policing the industry.

Insurers must call-out unlicensed adjusters who abuse the system, especially by serving as adjuster and contractor on the same claim. Public adjusters and attorneys should alert authorities when they witness unlawful practices. Without a multi-faceted effort by the industry, abuse, fraud, lawsuits — and resulting costs — will grow. CJ Wolf is lead partner, Property Insurance Defense Practice Koch Parafinczuk & Wolf, P.A.

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Glynnis Goldstein Atlanta, GA 12 years with Engle Martin

We train our people to be the best at what they do. Every day across the nation, our claims professionals are setting new standards for the industry with a progressive approach to the claims process.

That’s the Engle Martin Way. Visit us at www.englemartin.com to learn more.

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