Maryland Primary Agent - November 2015

NOVEMBER 2015 | MARYLAND

GOING OUT ON A LIMB

HOW TO HANDLE CLAIMS WITH CAUTION

E&O DANGERS OF SIGNING FOR A CLIENT NFIP REFORMS SUMMARY

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IN THIS

ON THE COVER 10

AVOID E&O WHEN HANDLING PROBLEM CLAIMS Agents tend to consider themselves advocates for their customers during the claims process. But if they’re not careful, they could end up on the wrong end of a lawsuit.

ALSO 18

OFFERING WATER AND SEWER BACKUP To avoid a “sticky situation” (such as a potential E&O claim), offer the water and sewer backup endorsement to all of your clients.

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MANY DANGERS Agency personnel signing client signatures on insurance documents is dangerous — and illegal — not to mention an E&O claim waiting to happen.

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STAYING AFLOAT IN A SEA OF NFIP CHANGES Rapid-fire reforms have left even the most well-informed agents struggling to keep their heads above water.

IN EVERY ISSUE 2 3 4 6 9

Chairman of the Board’s Message Ask Our Experts Coverage Corner State News IA&B Partners

IBC My Events IBC Advertiser’s Index IBC Classified Ads Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices. Ride-along enclosed. Postmaster: Send address changes to Insurance Agents & Brokers, 5050 Ritter Road, Mechanicsburg, PA 17055.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2015-11, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

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Copyright 2015. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and/or other professional advisors concerning specific matters before making any decisions. We disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.

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CHAIRMAN OF THE BOARD’S MESSAGE

FROM ONE INDEPENDENT AGENCY TO ANOTHER

M

INSURANCE AGENTS & BROKERS 5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com

OFFICERS

ake no mistake about it – errors and omissions happen. In fact, the industry estimate is that one in seven of us will face some sort of E&O claim during our careers.

That’s why many of us – myself included – look to our agents’ association for protection. If you aren’t working with IA&B to secure your agency’s insurance coverage, I suggest that you to learn more about the “agents’ agency.” Staffed with independent agents who are experienced covering agencies like ours, the IA&B Sales Center also boasts the backing of the entire association – an association that provides everything from loss prevention strategies to active involvement in E&O litigation. And if you aren’t taking advantage of those offerings (in-house legal staff, relevant classes, online resources and more), you are, quite frankly, squandering your membership dollars.

I’m not alone here. Take it from another member agent, Shannon Lipniskis: “I depend on [IA&B] for quality advice on E&O issues and best practices for legal compliance.”

What’s more, there is great value in getting involved with your association – whether it’s joining a Member Agent Panel, attending a conference or volunteering on the government relations committee or board of directors.

The benefit of engaging with fellow agents is priceless. The same goes for young agents. I’ve been there, busy selling and growing my book of business and unwilling to step away long enough to get involved with the agents’ association.

But trust me: You’ll save so much time and energy by learning from other agents.

There’s no need to reinvent the wheel!

Finally, if you haven’t contributed to AgentPAC, your state political action committee, this year, there’s still time. Know that your support helps our government affairs team build key relationships with legislators. And those relationships are invaluable when it’s time to make our case for or against legislation – legislation that can impact our livelihood in myriad ways. n

Chair of the Board

Robert S. Klinger, LUTCF, CPIA Vice Chair of the Board

Michael F. McGroarty Sr. Immediate Past Chair of the Board

Diana M. Hornung Hanby, ACSR

MEMBERS E. Stephen Burnett, CIC, ARM Wilmington, Del.

Richard F. Corroon, CPCU Wilmington, Del.

N. Lee Dotson, CIC, AAI Wilmington, Del.

Michael P. Ertel+ Columbia, Md.

Bryan C. Hanes, JD Hagerstown, Md.

John B. Hollister Milford, Pa.

Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa.

David C. King Lancaster, Pa.

Douglas A. Loesel, CPCU Erie, Pa.

Crag S. Mader

Gambrills, Md.

Ann Gallen Moll, CIC Reading, Pa.

Mark J. Monroe

West Chester, Pa.

Joseph R. Pastor, CPCU, AAI Oil City, Pa.

Richard M. Rankin, CIC Lancaster, Pa.

April E. Ressler, CIC Altoona, Pa.

Scott C. Rogers, CPIA* York, Pa.

Glenn R. Strachan

Ft. Washington, Md.

Best,

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

J. Marshall Wolff, CIC, CPCU Easton, Pa.

Robert S. Klinger, LUTCF, CPIA Chairman of the Board

* Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director

Editor’s notes: Learn more about how the IA&B Sales Center can meet your agency’s needs by visiting IABforME.com/MyAgency. To contribute to AgentPAC, visit IABforME.com/AgentPAC.

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NOVEMBER 2015

Ask Our Experts Question: If we receive positive online customer reviews, can we use those to advertise our agency? What if we send a gift card to those who provide online reviews?

Answer:

T

his question may be best answered with a “proceed with caution.”

There is nothing fundamentally wrong with touting customer satisfaction that has been properly measured. When the reviews have been obtained with the use of incentives, however, the impartiality of the answer can be called into question.

Therefore, publication of the results would require some disclosure of the incentive or “material connection” between the person providing the review and your agency. When it comes down to it, it stands to reason that someone expecting a gift card is more likely to feel compelled to give you positive feedback.

Case in point, in April 2015, the Federal Trade Commission (FTC) issued a decision that has a direct bearing on the use of “incentivized reviews.” The case alleged that Amerifreight Inc. represented to consumers that its products were highly rated or top ranked based on its customers’ unbiased reviews, while the company failed to disclose that it paid

consumers to post reviews. The FTC’s decision and order barred Amerifreight from “deceptively touting online consumer reviews and failing to disclose incentives it provided to reviewers.”

Bottom line: If you intend to use your customers’ online reviews to make certain advertising claims, it is better to use reviews that are provided without incentive. In addition, any material connection between the agency and the reviewer that could influence the review must be clearly and prominently disclosed. A material connection is something that affects the weight or credibility of the endorsement and that would not reasonably be expected by consumers, such as a free gift or other advantage, or the fact that the reviewer is employed with the agency. n

This month’s answer was provided by Claire Pantaloni, CIC, CISR, our industry affairs director.

Have a question?

Ask our experts!

Rely on our experts to answer your most perplexing questions.

Visit the Ask Our Experts section of IABforME.com (find the link in the website footer) to submit your question and review answers to other frequently asked questions. Or email your question to us at IAB@IABforME.com.

We look forward to hearing from you.

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COVERAGE CORNER

THE NLRB AND “JOINT EMPLOYERS” Jerry M. Milton, CIC

A

National Labor Relations Board (NLRB) ruling that modified the definition of an employer could hurt small businesses including franchises and subcontractors, according to industry groups that advocate for those companies..

In August 2015, in a 3-2 decision involving waste management company Browning-Ferris Industries of California (BFI) and a staffing company, Leadpoint Business Services, the NLRB modified its standard for determining joint employer status. According to the NLRB, the revised standard is designed “to better effectuate the purposes of the Act in the

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current economic landscape.

In its decision, the NLRB found that BFI was a joint employer with Leadpoint, the company that supplied employees to BFI to perform various work functions for BFI, including the cleaning and sorting of recycled products. It is estimated that currently there are more than 2.9 million workers employed through temporary and staffing agencies.

Before this ruling, companies had to exercise “direct operational and supervisory control” over the employees to be considered joint employers. In their ruling the NLRB said it will consider

NOVEMBER 2015

factors such as whether a company exercised control over employees “indirectly through an intermediary, or whether it has reserved authority to do so” in determining whether companies are joint employers.

Now franchisors could be responsible for alleged discrimination, harassment, wage, labor practices and other allegations that previously were directed at the franchisees only. In addition, franchisees could see a reduction in their control of the business.

The franchise industry is concerned because individually owned franchises, which are often owned by small

companies, now could be drawn into national labor disputes, said the International Franchise Association (IFA). According to the IFA, this new standard would increase the likelihood of union campaigns against national businesses while forcing the small franchisees to become engaged in protracted, unnecessary and costly legal battles. The National Restaurant Association said the ruling would have a negative impact on franchisees’ decisions to expand and hire more workers.

Other small businesses can be affected according to the National Federation of Independent Business (NFIB).

It contends a company that hires a subcontractor to do work could possibly be considered a joint employer with the subcontractor.

Franchises are also concerned because the NLRB’s Office of General Counsel contended earlier this year that McDonald’s has enough control over its franchisees’ operations to be considered a joint employer with the owners of the individual restaurants.

The ruling was also criticized by the National Retail Federation, which said it unnecessarily blurred the distinction between companies that are independent of one another.

“Subcontractors will come under pressure to change their employment policies or they’ll be cut out of the picture altogether,” said Beth Milito, an attorney for NFIB.

How will this ruling affect our Workers’ Compensation, CGL, Business Auto and Employment Practices policies? Too early to tell.

Y’all take care! n

Jerry M. Milton, CIC, teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He also serves as our education consultant, working with our CISR, CIC and continuing education programs. Catch him at one of our upcoming seminars: IABforME.com/MyTraining.

Will we now have employees that we didn’t have in the past? Sounds like it.

Training where, when and how you want it.

My E-Training Center is IA&B’s new online portal for on-demand CE and webinars.

IABforME.com/e-Training

New Programs Added This Fall Checkout “Essentials of Homeowners’” and other CE topics specifically for CSRs.

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STATE NEWS

REDMER DELIVERS ON GOAL OF NEW CARRIERS The state’s workers’ compensation and life insurance markets have seven new players. The Maryland Insurance Administration (MIA) recently announced that it granted Certificates of Authority to: • NorthStone Insurance Company • PinnaclePoint Insurance Company • SummitPoint Insurance Company • MEMIC Casualty Company • Southern Insurance Company of Virginia • Explorer Insurance Company

INDIVIDUAL, SMALL GROUP HEALTH INSURANCE UPDATES

• Assured Life Association

The outlook for next year’s health insurance market is becoming clearer. Following this summer’s (belated) launch of the state’s small business health exchange, the Maryland Insurance Administration (MIA) in September announced its approval of 2016 health insurance premiums for the small group and individual markets. The MIA reduced the rates by approximately $66.4 million from the insurers’ original requests.

SMALL GROUP MARKET Overall, rates in the small group market will decrease by 1.8 percent in 2016. The MIA attributes this to “increased competition and two decades of reforms.” The MIA estimates that 4.2 percent of Marylanders are in the small group market – the market within which 11 companies filed rates to sell insurance.

INDIVIDUAL MARKET The rate change requests in the individual market – through which 3.9 percent of state residents secure insurance – varied more significantly. For the eight carriers that filed rates, the MIA approved premiums ranging from a 3.2 percent decrease to a 26.0 percent increase from 2015 plans.

SMALL BUSINESS HEALTH EXCHANGE Following over a year of delays, the state’s small business health exchange launched this summer through three third-party administrators: Kelly & Associates Insurance Group, BenefitMall and Group Benefit Services. In addition to small business tax credits, the exchange now offers an employee choice program – a program for employers to allow their employees to choose among multiple plans within a metal level (bronze, silver, gold or platinum).

The open enrollment period for the individual market began on Sunday, Nov. 1. The small business health exchange permits employers to sign up for tax credits or switch to the employee choice program at any time.

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NOVEMBER 2015

COMMISSION SHARING AMONG TITLE INSURANCE PRODUCERS General commission-sharing rules do not apply to title insurance producers.

According to recently released Maryland Insurance Administration (MIA) Bulletin 15-24: Except as permitted under Section 11-407(c) of the Insurance Article, title insurance producers are expressly prohibited from paying or receiving any consideration[emphasis added] to solicit, obtain, retain or arrange real estate settlements.

This state prohibition is consistent with the federal Real Estate Settlement Procedures Act, which prohibits the payment/receipt of any form of kickback in connection with specific real estate settlements. (For more, see our online referral fee resources at IABforME.com/ resource_center/referral.)

The latest announcement follows the MIA’s Bulletin 15-22, issued in July, on the subject of commission sharing. As

previously reported in Agent Headlines and Primary Agent, the first bulletin explained that, in exchange for a referral, an insurer or its appointed producer is permitted to pay a referral fee or split a commission with a licensed producer who is not appointed by the applicable insurer.

The subsequent bulletin explains that the original bulletin did not apply to title insurance producers in connection with the settlement of real estate transactions.

NEIGHBORING NEWS: DELAWARE CUTS SURPLUS LINES RED TAPE The administrative headaches associated with placing business in Delaware’s surplus lines market are a little lighter thanks to the passage of our legislative priority in the state for the year. House Bill 40 (now Chapter 30 of the 148 General Assembly) – which took effect in September – removed once and for all the notarization requirement on the surplus lines diligent effort form (SL-1923).

BACKGROUND Late last year the Delaware Department of Insurance (DOI) took a literal stance of the law and began requiring notarization of all surplus lines affidavit forms. Our sister association in Delaware immediately began to work with lawmakers and the DOI on legislation to provide a “fix” to this new notarization requirement.

Rep. Bryon Short, chairman of the House Economic Development/Banking/ Insurance/Commerce Committee and long-time friend of the association, served as the primary bill sponsor. Additionally, the DOI was extremely receptive to our concerns and very helpful in supporting this legislation.

PROGRESSIVE IMPLEMENTS PAP CHANGES

By Oct. 22 agents with Maryland customers insured through Progressive should have received notification regarding changes to the carrier’s Personal Auto Policy (PAP). Policy changes include: • The addition of “rated resident” to the contract (a non-relative roommate or domestic partner, when appropriately listed on the policy and who drives the insured vehicle, will be afforded broader coverages); • Aligning the rights of lienholders and insureds (if Progressive denies applicable coverage to an insured, it will also deny coverage to the lienholder); • Capping roadside assistance usage (Progressive will pay for three roadside assistance claims per six month policy period, per covered vehicle – the number of claims was previously unlimited); • The Payment of Premium section has been modified whereby coverage will be void from inception if an applicant’s initial premium payment is not honored by the financial institution;

Note that these changes differ from those unveiled elsewhere (including in Delaware) earlier this year. Thanks to agent feedback, the Maryland contract Duty to Report section maintains its original wording, that material changes to a policy should be reported “promptly.” The Delaware contract’s Duty to Report section – which was revised to read “within 30 days” – will be reverted to “promptly” at a yet-to-be determined time.

The policy changes for Maryland insureds will affect both new and renewal business, as follows: • New business customers, with policies effective on or after Oct. 22, 2015, will receive the new policy contact; and • Starting on Oct. 22, 2015, renewal customers will be provided with a “notice” outlining the policy changes, as well as their renewal documents and new policy contract. Changes will not go into effect until the renewal effective date.

• The Automatic Termination section has been modified to provide for automatic termination of coverage for an insured vehicle if it is sold or transferred; and • The additions of definitions and exclusions which clearly outline that no aspects of ride-sharing or vehicle-sharing are covered under the insured’s PAP.

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PLATINUM PROFILE

Insurance Agents & Brokers proudly recognizes Millers Mutual Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

EXPECT EVEN MORE FROM MILLERS MUTUAL

I

t’s not every day you hear a company asking its customers and agency partners to expect more. At Millers Mutual we take it a step farther and ask you to expect EVEN more. More focus. More tailored coverage. More flexible pricing.

More attentiveness.

For Millers Mutual, an important part of becoming better for you is refining our underwriting appetite to focus on our market expertise – providing the highest value possible to agents and their customers.

Our commercial property underwriting appetite is set on habitational and residential real estate. For habitational we seek well-managed apartments and 1-4 family rental dwellings. For commercial real estate we’re focused on lessor’s risks and mixed-use occupancies, shopping centers, strip malls, office buildings, warehouses and industrial parks. Our hospitality focus is on bed and breakfasts, motel & hotels, social clubs and fraternal organizations.

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This is what we know and do best, and is our forward focus.

We’re committed to being a valuable resource for – and maintaining meaningful relationships with – our independent agent partners by providing exceptional property-driven insurance for building owners in Pennsylvania, Delaware, Maryland, DC, Virginia and Ohio. That commitment began with our founding in 1890 and holds just as true today.

Our expert and seasoned underwriters – not a computer model – evaluate every opportunity. We give you personalized attention and a quick decision. Our approach is to work with you to find a creative underwriting solution to be able to tell the customer “yes.”

All this is what we mean by “There’s More for you at Millers.” n

NOVEMBER 2015

FOCUSED ON RESULTS FEATURED PARTNER Millers Mutual Group CHIEF EXECUTIVE OFFICER Scott Orndorff President and CEO CORPORATE HEADQUARTERS Harrisburg, PA A.M. BEST RATING A- (Excellent)

PARTNERS PROGRAM

Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers.

Thank you for your continued sponsorship.

WHAT IS IA&B PARTNERS? The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

PLATINUM LEVEL

BRONZE LEVEL

ACUITY

Aegis Security Insurance Co

Berkley Mid-Atlantic Group

Agency Insurance Company

Donegal Insurance Group

AmWINS Program Underwriters Inc

Erie Insurance Group

ARI Insurance Companies

Harleysville Insurance

Auto-Owners Insurance Company

Insurance Agents & Brokers Service Group Inc

Bailey Special Risks Inc

Liberty Mutual Insurance

Briar Creek Mutual Insurance Company

MMG Insurance Company

Conemaugh Valley Mutual Insurance Co

Millers Mutual Group

Countryway Insurance Company

Mutual Benefit Group

Encompass Insurance

Penn National Insurance

Foremost Insurance Group

Swiss Re

GMI Insurance

The Main Street America Group

Goodville Mutual Casualty Company

United Fire Group

Guard Insurance Group

Utica National Insurance Group

HM Workers’ Compensation

Brethren Mutual Insurance Company

Insurance Alliance of Central PA Inc

DO YOU SEE YOUR NAME? To become an IA&B Partner, choose the sponsorship package that matches your commitment of support.

Contact the Member Sales Center at 800-998-9644, 717-795-9100 or visit us online at IABforME.com to get started.

GOLD LEVEL

Amerisafe Progressive Westfield Insurance

Insurance House Insurance Placement Facility of PA Keystone Insurers Group Inc Lackawanna Insurance Group Lebanon Valley Insurance Company Merchants Insurance Group

SILVER LEVEL

Mercury Casualty

Access Insurance Company

Millville Mutual Insurance Co

American Mining Insurance Co

PennPRIME Municipal Insurance

Cumberland Insurance Group

Reamstown Mutual Insurance Company

Farmers Mutual Insurance Company of Western Pennsylvania

Rockwood Casualty Insurance

Frederick Mutual Insurance Co Juniata Mutual Insurance Co

State Auto Mutual Insurance Company TAPCO Underwriters Inc The Motorists Insurance Group

MAPFRE Insurance

The Mutual Service Office Inc

PSBA Insurance Trust

Travelers

Selective

Tuscarora Wayne Group of Companies

The Philadelphia Contributionship

Zenith Insurance

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NOVEMBER 2015

AVOID AGENT E&O WHEN HANDLING PROBLEM CLAIMS

By Brent Winans

Agents tend to consider themselves advocates for their customers during the claims process. But if they’re not careful, these agents could end up on the wrong end of a lawsuit themselves.

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M

ost agents tell their insureds that one of the prime benefits they provide for their clients is that they will advocate for them with the insurance company when there is a claim. So, I was surprised recently to hear advice from one of the nation’s leading providers of insurance agents’ errors and omissions (E&O) coverage that agents should be very careful about advocating for a client when there is a claim denial. Their bottom line was that agents need to take due precautions about when and how they advocate for their clients so they do not end up on the wrong end of a lawsuit themselves. As a result of that shift, I believe insureds may need to take more responsibility to advocate for themselves.

THE DANGERS OF AGENTS TRYING TO BE COVERAGE ATTORNEYS Recently, a group of highly experienced agent E&O defense attorneys were asked what practices were most likely to result in an E&O claim against the agent. One of their top picks was, “Advocating in writing on behalf of the customer once a claim has been submitted and denied by the carrier.”

Once a final denial has been issued, agents need to be careful about turning up the heat on the insurance company because the goose they cook may be their own.

Why is that such a problem? Isn’t that just what good agents do for their clients? One defense attorney explained to me that if an agent writes a letter insisting that a claim should be paid and then the insurer successfully upholds its denial in court, the

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NOVEMBER 2015

agent may have just demonstrated that he did not understand the policy he sold. The attorney for the insured can then use the agent’s letter as “Exhibit A” to prove that the agent misled the insured about the coverage he was buying.

Here is an example that shows how that scenario might play out in real life.

A friend of Ben’s had recently opened one of the increasingly popular indoor trampoline parks. After an extensive marketing effort, Ben was able to place the coverage with a leading excess and surplus lines insurer. Among several other exclusions, the policy contained one that deleted coverage for participants in organized teams. Not long after the policy was written, a 17-year-old boy suffered a paralyzing neck injury while playing trampoline dodge ball. It came to light that several churches in the area had organized a trampoline dodge ball league, and the boy was playing on one of them when he was injured. The insurer denied coverage based on the exclusion.

Ben wrote a strongly worded letter to the insurer insisting that the claim should be covered since the “league” was not incorporated and was really just a bunch of church kids having a good time. The court found for the insurance company, reasoning that the policy unambiguously excluded participants in organized teams, whether their organizations were incorporated or not. The insured then sued Ben’s agency, alleging that Ben had misled him about the coverage provided, using Ben’s letter as evidence.

As with many E&O cases, whether a client would be likely to win such a suit would be highly dependent on the state law that applied and the facts of the case, but a letter like Ben’s would rarely be helpful to an agent’s defense. A highly respected defense attorney told me, “I have been litigating coverage cases for decades, and I still cannot tell what a particular court will rule in a particular case. How can agents be so sure? During a claim, agents should provide information, facilitation, and communication, not try to make a coverage determination.

And, if agents insist on doing so, they certainly should not do it in writing.”

IF YOU CAN’T STAND THE HEAT, STAY OUT OF THE KITCHEN Agents should understand that anything they do that encourages an insured to sue its insurance company may increase the chances that the agent will be sued, too. A policyholder attorney explained it to me this way: Let’s say that the insurance company is based in New York, but my policyholder client is in Georgia. That situation is

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referred to as diversity of citizenship, since the two parties are based in two different states. If the amount of the claim is also over $75,000, those two factors usually make the case eligible to be heard in federal court. Attorneys know that federal judges are generally less likely to send a case to a jury than state judges. So the insurance company would usually try to have the case tried in federal court, since they often don’t want to face a jury, which is commonly propolicyholder. But because I do want to try the case in front of a jury, I want to keep the case in state court. If the agency is also located in Georgia, and I have a legitimate basis to bring the agency into the suit along with the insurance company, I have a better chance of keeping it in a Georgia state court. So, if I can reasonably bring the agent into the suit in that situation, I am going to.

There is another danger to agents in raising their client’s dissatisfaction with an insurance company’s claim denial. In the course of the litigation against the insurance company, agent errors that were not discovered previously may come to light.

For example, an agent believed that the insurance company was allocating too great a portion of the homeowners’ damages to flood and not enough to wind in a hurricane claim. That resulted in the insureds hitting their maximum flood limit of $250,000 on the dwelling. The agent made her case loudly, and the client sued the wind insurer. During the litigation, the clients learned that it would have been possible for them to have purchased excess flood insurance, a possibility they were unaware of and that the agent had never mentioned. As a result, the insureds brought a suit against the disbelieving agent for not advising them of the existence of excess flood coverage.

As is discussed below, there are scenarios in which it is both generally safe and helpful for agents to advocate for their clients.

However, once a final denial has been issued, agents need to be careful about turning up the heat on the insurance company because the goose they cook may be their own.

FIGHTING THE GOOD FIGHT The above exceptions do not negate the rule that agents can provide their clients with much needed service and advocacy at claim time.

REPORTING THE CLAIM In the 2013 Property Claims Satisfaction Study published by J.D. Power and Associates, they reported that satisfaction among home insurance claimants who filed through agents was 50 points higher than it was for those who filed claims directly with the insurance company. Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates,

NOVEMBER 2015

ost there when it matters most there when it matters

Technology

At Donegal we understand that “ease of doing business” is vital in determining the value of a carrier to any independent agency. That’s why Donegal focuses on providing superior technology including fully automated web-based systems for Personal, Commercial and Farm Lines to give our agents optimal efficiency in quoting and issuing policies.

And while we’re pleased to offer advanced technology equal to any of the national carriers, Donegal constantly strives to improve and enhance that technology.

Donegal’s commitment to delivering superior technology to make your job easier… another way Donegal is “There When It Matters Most.”

To learn more visit www.donegalgroup.com or call Rick Kelley at 800-877-0600.

ASK OUR EXPERTS WHEN AN insurance company just plain gets it wrong, the author suggests that one remedy is to cite authoritative reference works and resources, including state agents’ associations “ask the expert” services.

If you haven’t yet, be sure to check out our Ask Our Experts offering, available at IABforME. com. Our library of answers covers topics such as legal compliance and agency management, and coverage issues and technology.

Plus, member agents are encouraged to submit their questions at any time.

IABforME.com/about_us/ contact_us/ask_our_experts

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commented, “Especially during times of hardship when someone’s house has been destroyed or their valuable possessions have been lost, it’s difficult for a call center representative to replicate the personal relationship customers get with an agent.”

Insureds that start the claim process with a clear understanding of what lies ahead and a sense that their agent will help them through are less likely to end up in litigation about their claim. Even if an agent talks the client through the process and then directs the client to a call center, the agent’s contribution may be pivotal.

in helping agents get claims paid that should be covered. The key is to get the insurer to reverse its initial denial before the attorneys get involved.”

So, it is generally low risk for agents to advocate for clients on a claim before the attorneys get involved, humbly citing objective experts. (Something like, “I am not an attorney, but the IRMI Risk Report on this subject states....”)

It is much more perilous for agents to advocate for their clients after the attorneys get involved, whether citing outside experts or not.

KEEPING THE COMPANY FOCUSED At all stages of the claim process, agents can work to ensure that their clients are getting the attention they deserve. One agency manager commented, “Advocating for claims can be very good and very healthy. It normally takes the form of a call to the insurer saying, ‘Hey, you already said this is covered. Now hurry up and pay the people.’ I think insureds appreciate this, and it is very much inside our role as a good agent.” I agree.

If the advice about how and when agents can safely advocate for clients does not seem clear-cut, that is because it isn’t. These are litigious situations, in which the rules are seldom black and white. But the following may clarify the recommendations of defense counsel: Lower risk to agent – advocating: • Before a final claim denial – attorneys not involved • Quoting the opinions of industry experts • Verbally Higher risk to agent – advocating: • After a final claim denial – attorneys involved • Relying on the agent’s own opinions • In writing

CITING THE EXPERTS Sometimes, the insurance company just gets it wrong. If the insurer is clearly misinterpreting the policy, citing authoritative reference works, such as those published by IRMI, can sometimes help them see the light. Different state and national agents’ associations also offer “ask the expert” services, which may help an agent convince a mistaken claims adjuster. But timing is key. The director of one such agents’ expert service says, “We have had a very successful experience

OBSERVATIONS FROM THE AGENT’S POINT OF VIEW The recommendation that agents should be careful about advocating for clients in a claim may run counter to what many agents believe is their responsibility. We know that those we depend to protect us—police, firefighters, soldiers—often put themselves in harm’s way for our sake. At times, agents advocating for their policyholders may see themselves in a similar role. Personally, that is the kind of attitude I want my agent to have. But

CORRECTING THE FACTS If the insurer’s claim denial is based on its mistaken understanding of the facts of the case, the agency can correct the record.

NOVEMBER 2015

just as firefighters should not rush into a burning building without adequate preparation and an understanding of the risks they face, agents should not rush into a problem claim without understanding the possible consequences to themselves.

What nobody wants is a disillusioned Don Quixote who lies bleeding on the floor and says, “If I would have known what this was going to cost me, I would never have joined the fight.”

OBSERVATIONS FROM THE INSURED’S POINT OF VIEW Insureds who read this article may be surprised to see how their interests and their agents’ interests may sometimes differ at claim time. What does that mean to insureds? I believe it means that the insureds may want to have a conversation with an experienced policyholder attorney

earlier than they otherwise would. If the claim may touch the agent as well, then that attorney should also be familiar with agent E&O claims. In my experience, policyholders are frequently represented by attorneys with little or no insurance coverage or agent E&O expertise.

The attorneys are often chosen just because the insured happened to have a relationship with them at the time of the claim. They are not likely to represent the insured well and may bring unwarranted and alienating actions against both the insurance company and the agent. Even if the attorney is charging on a contingency basis, the enormous waste of time, energy and opportunity makes it well worth it for the insured to find counsel who knows the ropes. n

Brent Winans, vice president for Clear Advantage Risk Management, authored this article. He provides fee-based (no insurance sales) risk management consulting services to larger clients, provides technical support and training for insurance agents, and serves as an expert witness on both sides of agent errors and omissions cases across the country. He can be reached at bwinans@cleararm.com or 561-276-9158.

Reproduced with permission of the publisher, International Risk Management Institute Inc., Dallas, Texas, from the Expert Commentary section of IRMI.com, copyright International Risk Management Institute Inc. Further reproduction prohibited. For more information or to schedule a free demo of IRMI products, visit www.IRMI.com.

17

DON’T END UP IN

HOT WATER

BECAUSE OF WATER AND SEWER BACKUP

18

NOVEMBER 2015

By Amy Grabinski, AIC, SCLA

H

ow often does the average person truly think about insurance? Probably seldom. In most cases, the premium is paid, and the policy is then filed away. That’s why it’s crucial at the time of application to educate your customers about typical exclusions as well as endorsements available to adequately protect their property.

One of the most beneficial conversations to have is to recommend that your clients add the water and sewer backup endorsement to their homeowners’ policy. It is often overlooked but will provide considerable peace of mind to your clients.

SMALL PRICE TO PAY, LITERALLY The premium could be as little as pennies a day. However, the expense of an uncovered water claim could be thousands of dollars, along with the embarrassment of advising a client he or she does not have coverage for a finished basement damaged by a water back-up loss.

• Provide clients with a clear understanding of a water and sewer back-up claim and what the endorsement covers (as opposed to a flood claim).

When the policy is issued, send a cover letter with it reminding your client to review the declaration pages and to read the policy, endorsements and exclusions to be certain what he or she expected to be covered actually is covered. n

Amy Grabinski, AIC, SCLA, senior errors & omissions claim specialist with Utica National, wrote this article, which the Utica National E&O Program originally published. The article is intended for informational purposes only, not to be – nor relied upon as – legal advice. Legal questions should be directed to your legal advisor.

Copyright © 2015, Utica Mutual Insurance Company.

All rights reserved.

PREVENT A “STICKY SITUATION” To avoid a potential errors & omissions claim, discuss and offer the water and sewer back-up endorsement to all of your clients on their homeowners’ policies. Here are practical tips to remember to help prevent a “sticky situation”: • Make sure that everyone at the agency is aware of the water exclusion on a typical homeowners’ policy and knows to inform the client.

• Recommend adding the water and sewer back-up endorsement on all homeowners’ policies.

• Provide a copy of the endorsement to read during the application process. Seeing it in black and white drives home the necessity of having it on the policy.

STATE STANDARDS IN MARYLAND, insurers must, at the time of application and renewal, offer in writing to provide coverage for loss caused by the backup of water with limits equal to the coverage limits of the homeowners’ insurance policy.

• Get a rejection in writing. A checklist requiring the client to initial rejected optional coverages is helpful in the event of a future dispute.

19

THE

MANY DANGERS OF

signing your client’s name

By Daniel J. Hammond, CPCU, AIS, AIC, AINS, ARe

D

ynamite. Plunging over Niagara Falls. Signing a client’s name to an insurance document.

What do these have in common?

All are activities that most insurance professionals would avoid. However, we see E&O claims involving allegations of agency personnel signing client signatures to insurance documents.

WHY IS SIGNING A CLIENT’S NAME AS DANGEROUS AS PLAYING WITH DYNAMITE? The practice is dangerous because insurance documents requiring client signatures, such as applications:

• Typically have a provision stating the client is verifying the contents are true and accurate and • Is routinely considered part of the insurance contract.

20

If a misrepresentation or inaccuracy is on the application, the carrier often will rescind the policy rather than cover a loss.

The client, with coverage denied, will then sue the agent.

Having the client sign an application provides a strong defense to the agency in the E&O context. The client has verified that the information in the application is true and accurate. However, if the signature on the application is not the client’s signature, it “lights the fuse” for the client to allege that it was the agency and not the client that made the misrepresentations on the application.

WHY IS SIGNING A CLIENT’S NAME AS DANGEROUS AS PLUNGING OVER NIAGARA FALLS? Going over the Falls can be ruinous.

Under the Niagara Parks Act, it is also illegal.

NOVEMBER 2015

Likewise, signing someone else’s name to a document verifying the accuracy of the information contained in the document exposes you to liability. It is also prohibited by law and can result in the non-renewal, revocation or suspension of your license….

Furthermore, the predisposition of a jury is to rule in favor of a party who has been taken advantage of. In a typical E&O suit, the client has suffered a loss with no insurance and seeks to recover the loss from the agent. If the jury believes that the agent took advantage of the client by forging a signature and the contents of the application, they will likely conclude that the client was taken advantage of. In the eyes of a jury, this may be the deciding factor in returning a verdict for the client.

MORE WHERE THIS CAME FROM ONE OF the benefits of securing your E&O coverage through the IA&B Sales Center is the solid risk management strategies we provide – from our association staff and from our carrier partners, such as Utica National. In addition to monthly E&O articles in Primary Agent, IABforME.com includes a library of loss-prevention resources.

Our Sales Center is the exclusive agent for the Utica E&O program in Maryland. For questions regarding this article or your E&O coverage, contact us at 800-998-9644 or IAB@IABforME.com.

IABforME.com/MyAgency

HOW COULD THIS AFFECT AGENTS’ E&O COVERAGE? Signing your client’s name can jeopardize the availability of agents’ E&O coverage. Agents who sign the names of others on insurance documents are engaging in a dangerous activity with a significant downside. Protect yourself and your business by avoiding this practice at all costs.

Daniel J. Hammond, CPCU, AIS, AIC, AINS, ARe – senior associate claims attorney with the Utica National Claims Legal Department – authored this article, which the Utica National E&O Program originally published. The article is intended for informational purposes only, not to be – nor relied upon as – legal advice. Legal questions should be directed to your legal advisor.

Copyright © 2015, Utica Mutual Insurance Company. All rights reserved.

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21

STAYING AFLOAT IN A SEA OF NFIP CHANGES

By M. Rita Hollada, CPCU, CIC, CPIA

Rapid-fire reforms to the NFIP have left even the most well-informed agents struggling to keep their heads above water. On the following pages, Rita Hollada shares a highlevel look at what’s new – and previews her revisions to our on-demand “Understanding the National Flood Insurance Program” training, set to launch in the new year.

22

NOVEMBER 2015

C

hange seems to be the byword these days when it comes to the National Flood Insurance Program (NFIP.) After years of a predictable program with moderate rate increases and reasonably stable rules, recent legislation has flooded the program with changes.

LEGISLATION TO REFORM … AND RE-REFORM The Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) started the NFIP on the road of change. Everyone appreciated what Congress was trying to do: make the program actuarially sound and reduce the need to borrow from the Federal Treasury when catastrophe strikes. Unfortunately, the legislation was poorly structured, and the results were catastrophic to policyholders, property owners and agents alike.

When that realization became evident, Congress quickly passed the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA) to moderate BW12 and postpone some of its mandates. However, by reversing some of the rating changes, the program was left with a problem of how to fund some of the other measures of the legislation. That started us down the path of rate increases, fees, surcharges and assessments that are being felt by every policyholder.

SUBSIDIZED RATES HFIAA brought with it some good changes. It reestablished subsidized rates for Pre-FIRM properties. This affects properties that were built prior to the flood program – most of them before 1974. These properties often have basements or lowest levels significantly lower than current published Base Flood Elevations.

When rated using current mapping data, also referred to as full risk-based rates, many of these properties saw tenfold or larger premium increases.

By continuing to subsidize these rates, which are still quite high, Congress acknowledges that these 40-year-old-plus structures need some financial consideration. These rates will continue to rise until the property reaches its full risk-based premium.

Obviously, this is a situation that producers need to monitor continuously for the benefit of the insured.

GRANDFATHERED RATES Grandfathering was also reinstated by HFIAA. This NFIP initiative allows structures to continue to be rated per the FEMA map in effect at the time of the original construction, as long as the structure was built in compliance with the flood zone and elevation of that map and not structurally altered since that time. However, if the new Base Flood Elevation and/or zone is advantageous to the insured, agents definitely want to use the new map information as the basis for rating.

But – and it is a big but – every Pre-FIRM and grandfathered structure does not receive the same pricing consideration under the legislation. Primary residences (where the insured or spouse reside 50 percent or more of the year) get lower rates than second homes, rentals, investment properties, non-residential buildings and businesses. The rate tables are now separated, with higher rates applying to buildings that are non-primary residences or non-residential business.

SURCHARGES During early 2015, every residential property owner was required to document if the home was primary. New applications for flood insurance on a residential property must also be accompanied by this documentation. Without the documentation, the policy will be surcharged the $250 applicable to all structures instead of the $25 surcharge reserved for primary residences. These surcharges are known as the HFIAA surcharges.

There are other surcharges as well that are applied to every policy, including the Preferred Risk Policy (PRP). The reserving surcharge is calculated as a percentage of the base premium.

Currently the rate is 15 percent, with a reduced charge of 10 percent for PRP policies. The legislation authorizes this surcharge to increase to 30 percent. Preliminary notification from NFIP proposes that, effective April 1, 2016, the surcharge on the PRP policy be increased to 15 percent while other standard policies continue at 15 percent. These funds are used to establish a reserve fund against future losses.

The third additional charge is applicable to all policies. This is the expense constant of $45 which is proposed to increase to $50 as of April 1, 2016. By the way, agents do not receive commission on any of these three additional charges. The surcharges are also non-refundable if a policy is cancelled. Surcharges are all in addition to the risk-based rates which will continue to rise annually at an average of 18 percent for residential and 25 percent for business risks.

NEW REQUIREMENTS Beginning with the November 2015 renewal policies, the declaration page of the flood policy will also designate if a nonresidential building is business or other. Agents are being asked to make that distinction based on some examples. Mercantile, industrial, nursing homes, motels and agricultural buildings should be classified as business. Any non-profit building such as a church, community center, museum, school or government building is considered non-residential other. This information is being compiled in anticipation of future changes in the flood program. Be sure to classify your risks accurately and advise the flood servicing carrier if the use of the building changes.

23

November will also introduce the revised NFIP flood insurance application and change request. The new application has many additional questions with regard to items and equipment in a basement and a crawl space as well as a garage. The application also requires that you note the current map information as well as the map information used for rating (grandfathering). Coming soon is a new Elevation Certificate with additional property information and photo requirements requested and additional illustrations of buildings. The Manual for agents will be updated with instructions to complete these forms.

3281 Summit Ad There are other changes affecting lenders and the write your own 7.25X4.625 companies as well. The bottom line is that everyone needs to PropMan stay aware and be mindful of the ever changing National Flood Insurance Program. n

Rita Hollada, CPCU, CIC, CPIA, has worked closely with the NFIP for over twenty years as a member of the Flood Insurance Producers National Committee. She is the author of our On-Demand “Understanding the National Flood Insurance Program” training, which she is in the process of updating to include recent changes. Rita often presents programs on the flood insurance topic.

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NOVEMBER 2015

CLASSIFIED A DV E R TI S E M E N TS

My Events

SOUTHEAST PA PRODUCERS & AGENCIES

November & December 2015 DATE TOPIC

LOCATION

NOVEMBER 3

CISR Elements of Risk Management

Philadelphia, PA

3

E&O Risk Mgmt.: Meeting the Challenge of Change

Bethlehem, PA

4

CISR Commercial Casualty II

Pittsburgh, PA

5

CISR Elements of Risk Management

Pittsburgh, PA

10

Business vs. Personal Auto

Newark, DE

10

William T. Hold: Writing Commercial Accounts

Baltimore, MD

10-12

Life & Health Licensing Study Course

Philadelphia, PA

11-14

CIC Commercial Casualty Institute

Hunt Valley, MD

16-17

James K. Ruble Graduate Seminar

Lancaster, PA

17

Business vs. Personal Auto

Baltimore, MD

17

CPIA Position for Success

Pittsburgh, PA

17

CISR Personal Residential

Waldorf, MD

17

CISR Commercial Property

Altoona, PA

18

Business vs. Personal Auto

Philadelphia, PA

18

CPIA Implement for Success

Pittsburgh, PA

18

CISR Personal Lines Miscellaneous

Reading, PA

19

CPIA Sustain Success

Pittsburgh, PA

19

CISR Personal Residential

Mechanicsburg, PA

Professional agency since 1926 located in Feasterville, Bucks County, Pa. Call for confidential information and a review of our services.

Contact Ray Reinard at 215-357-8600, Ext. 119.

If you would like to place a classified advertisement, please contact Laura Gaenzle at Laura.gaenzle@theygsgroup. com or (717) 430-2351.

DECEMBER 1

William T. Hold: Policy Language Surprises

Lancaster, PA

1-3

PA P&C Licensing Study Course

Mechanicsburg, PA

1-3

PA P&C Licensing Study Course

Pittsburgh, PA

2

E&O Risk Management: Meeting the Challenge of Change

Newark, DE

2-5

CIC Personal Lines Institute

Philadelphia, PA

8

CISR Commercial Casualty II

Philadelphia, PA

8

Business vs. Personal Auto

Pittsburgh, PA

9

CISR Commercial Property

Mechanicsburg, PA

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