Ask Tim

Employers Liability Coverage is Unlimited in New York, Except When It's Not

Question from an IIABNY member: When a certificate lists employers liability at :

• 100,000 each accident
• 500,000 policy limit
• 100,000 each employee

I always tell insured that in New York Employers liability is unlimited per the statute. Do you have something that proves this?

Answer: This is actually a little complicated because there isn’t a statute that mandates this. It’s more of a longstanding tradition. Also, the EL limits on the dec page may actually apply in certain circumstances. 

There is a 1988 New York Insurance Department advisory legal opinion on this topic. The last opinion the department issued on this was in 1990, and I think the 1988 opinion provides a better explanation. The attorney wrote in part: 

The workers' compensation carrier must "pay all sums" that the insured employer is legally obligated to pay third parties with respect to an employee's injuries which arose out of and in the course of employment, provided that, both the insured employer and the employee are subject to the New York State Workers' Compensation Law. [EMPHASIS ADDED]

The workers' compensation carrier may not impose any limit of liability for compensable injuries. The unlimited liability language of the New York Workers' Compensation Policy has been in effect for more than 40 years. The New York State Department of Insurance has never approved a workers' compensation policy form that would impose a limit on a carrier's liability for a compensable injury which includes the employer's liability. It is interesting to note that, the unlimited coverage for liability contained within Coverage B is a continuation of the coverage prevalent at the time the standard compensation policy was revised in New York in 1954. The concept of unlimited liability coverage originated in the insurance industry and was accepted by the Insurance Department when workers' compensation policy forms were submitted to the Superintendent of Insurance for approval.

Therefore, EL coverage is unlimited with regard to injuries and employments that are subject to the New York Workers’ Compensation Law. For example, a worker is in a scissor lift installing overhead piping when the lift collapses. He collects WC benefits but also sues the lift’s manufacturer, who in turn sues the employer, alleging improper use or maintenance. The employer’s EL coverage is unlimited for this loss because the injury and employment are compensable under the New YorkWC law.

In contrast, a worker borrows a power saw without permission from his employer because the motor burned out on his own saw. While at home on a weekend, he amputates a finger when the guard on the saw falls off. He sues the saw’s manufacturer, who sues the employer, again alleging faulty maintenance. Because this injury is probably not compensable under the New York WC law, the EL coverage is subject to the limits shown on the dec page.

Another example: Recently, a public school teacher near here got burned when his science experiment in the classroom went wrong. Put him in private school. If he sued the manufacturers of the equipment and supplies used in the experiment, and those entities in turn sued the private school, the EL limits on the school's WC policy would apply, because “people engaged in a teaching capacity in or for a nonprofit…educational institution” are not covered by the NY WC law while “performing teaching duties.” 

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When Is a Home 'Unoccupied' Under a Homeowners Policy?

Question from an IIABNY member: In a strict reading on the homeowners policy, after a period of the home not being occupied, coverage becomes limited. The question came up on clients who leave their summer homes in New York to go to their winter residence, such as in Florida. We have a disagreement in our office as to whether the summer home would be considered unoccupied under the policy. Is there a clear answer to this?

Answer: I found a 1999 New York appellate court decision that appears to address your question. In McCabe v. Allstate, which pertained to a seasonal home located in Saratoga County, the judge wrote: 

We next review Allstate's contention that it was entitled to summary judgment due to the following loss exclusion: "Freezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances." We find plaintiffs' assertion that their house was not "unoccupied" in light of their continuing, albeit seasonal use of the premises, to be unavailing. Inasmuch as plaintiffs' primary residence was in Virginia and they concede that no one resided at or visited the house in Edinburg from September 1995 until March 1996, their claim falls squarely within the exclusion provision. This Court has previously determined that use of the word "unoccupied" in an insurance policy carries its ordinarily accepted meaning and that "[i]t is the regular presence of inhabitants that makes occupancy" (Coutu v Exchange Ins. Co., 174 AD2d 241, 244; see, Page v Nationwide Mut. Fire Ins. Co., 15 AD2d 306, 306-307). [EMPHASIS ADDED]

This decision has been cited by a federal court as recently as 2009, so it appears to still be a valid precedent. Consequently, it appears that the coverage limitations do apply to a home in New York that is unoccupied during the winter months.

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When a Carrier Terminates an Agency: Personal Lines Policies

Question from an IIABNY member: Can you please indicate where it is stated that an insured can request a one more year renewal for an automobile insurance policy after the required three successive one year policy periods, and if it also applies to personal lines insurance policies?

Answer: That’s not exactly what the law says. New York Insurance Law Section 3425(j)(1) states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:…

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;

As a side note: 

• Subsection (b) permits the insurer to cancel a policy for any reason in the first 60 days.
• Subsection (c) permits the insurer to cancel after day 60 and on renewals for non-payment of premium; suspension or revocation during the required policy period of the driver's license of the named insured or any other person who customarily operates an auto insured under the policy; and discovery of fraud or material misrepresentation in obtaining the policy or in making a claim under it.
• Subsection (f) permits the insurer to non-renew up to two percent of its auto policies in a given rating territory per calendar year.

What the above provision of the law is saying is that the insurer must offer to finish the auto policy’s required policy period (which is one year – see subsection (a)(8),) and, if the insured requests, offer to renew the policy through the terminated agent for three consecutive one-year policy periods. Here’s an example to illustrate:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Personal Auto Policy finishes the one-year required policy period on March 1, 2012

The carrier must offer to continue coverage under the policy until March 1, 2012. In addition, if the insured requests, it must offer to renew the policy through the terminated agent in 2012, 2013 and 2014. Effective March 1, 2015, it no longer has any obligation to offer a renewal.

With non-auto personal policies, it’s a bit different. The law states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period … and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period …

Here are two illustrations (in more understandable English) to show what this means. First:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2009, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2012.

The carrier must offer to continue coverage under the policy until March 1, 2012, it must offer to renew the policy through the terminated agent for the 2012-13 policy period, and, if the insured requests, must offer to renew the policy through the terminated agent for 2013 and 2014. Effective March 1, 2015, it has no obligation to offer a renewal.

Second scenario:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2010, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2013.

The carrier must offer to continue coverage under the policy until March 1, 2013, but it has no obligation to offer to renew the policy through the terminated agent after that. This is because the three-year required policy period ends more than a year after the carrier notified the agent of termination.

The rules surrounding a carrier's obligations to insureds when it terminates an agent are complex, but they boil down to when the carrier notifies the agent and when a policy expires.

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Ask Tim, Episode #31 -- Conditional Renewal Notices

In today's episode of the Ask Tim podcast, I take a look at the requirements in New York Insurance Law Section 3426 regarding when insurance carriers have to send conditional renewal notices on commercial lines policies. Also, a generous IIABNY colleague buys me lunch. Here are the highlights:

Carriers must send conditional renewal notices on some commercial lines policies to the first-named insured, at the address shown on the policy, and to the insured's authorized agent or broker. They must send a notice if they are conditioning renewal upon:

• Change of limits
• Change in type of coverage
• Reduction of coverage
• Increased deductible
• Addition of exclusion
• Some premium increases in excess of 10 percent

Future episodes will explore Section 3426 in more detail. 

Download Episode 31 of Ask Tim

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Can an Insurer Deny a Claim Because of an Undisclosed Driver?

Question from an IIABNY member: We just had a carrier ask us to have our client sign an acknowledgement that all drivers are listed on the policy. We’ve never seen this before. Have you?  Do you feel that the carrier could deny a claim if a driver is not listed?  Also, what if we don’t return the form? Is that legal reason to cancel the insurance?  I would doubt it.  Please see the attached and let me know what you think. 

Answer: I’ve never seen this before, and it’s interesting the way they’ve phrased it: Using unlisted drivers “may cause coverage disputes.” Here are my thoughts:

• Unless there’s an endorsement to the Business Auto Policy listing all drivers by name, there is no such thing as listing drivers on a policy. The carrier may have a list of drivers in its underwriting file, but that’s not the same as listing drivers on the policy.
• The New York Department of Financial Services (formerly the Insurance Department) has been very clear in the past that it considers “named driver exclusions” that exclude coverage required by law to be against public policy. In other words, a named driver exclusion applying to liability, PIP or UM will not hold up, but an exclusion applying to collision probably will. However, the department has said that the carrier should have the insured sign the exclusion to signify understanding.
• New York insurance law limits the reasons for which a carrier can cancel a commercial auto policy midterm. NY Insurance Law Section 3426(c) states:

After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in the obtaining of the policy or in the presentation of a claim thereunder;

(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period;

(E) material physical change in the property insured, occurring after issuance or last annual renewal anniversary date of the policy, which results in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last renewed; or material change in the nature or extent of the risk, occurring after issuance or last annual renewal anniversary date of the policy, which causes the risk of loss to be substantially and materially increased beyond that contemplated at the time the policy was issued or last renewed;

(F) a determination by the superintendent that continuation of the present premium volume of the insurer would jeopardize that insurer's solvency or be hazardous to the interests of policyholders of the insurer, its creditors or the public;

(G) a determination by the superintendent that the continuation of the policy would violate, or would place the insurer in violation of, any provision of this chapter; or

(H) where the insurer has reason to believe, in good faith and with sufficient cause, that there is a probable risk or danger that the insured will destroy, or permit to be destroyed, the insured property for the purpose of collecting the insurance proceeds, provided, however, that:

(i) a notice of cancellation on this ground shall inform the insured in plain language that the insured must act within ten days if review by the department of the ground for cancellation is desired pursuant to item (iii) of this subparagraph (H);

(ii) notice of cancellation on this ground shall be provided simultaneously by the insurer to the department; and

(iii) upon written request of the insured made to the department within ten days from the insured's receipt of notice of cancellation on this ground, the department shall undertake a review of the ground for cancellation to determine whether or not the insurer has satisfied the criteria for cancellation specified in this subparagraph; if after such review the department finds no sufficient cause for cancellation on this ground, the notice of cancellation on this ground shall be deemed null and void.

(2) With respect to that portion of a covered policy providing motor vehicle coverage, in addition to the basis for cancellation set forth in paragraph one of this subsection, suspension or revocation during the required policy period of the driver's license of any person who continues to operate a motor vehicle insured under the policy, other than a suspension issued pursuant to subdivision one of section five hundred ten-b of the vehicle and traffic law or one or more administrative suspensions arising from the same incident which has or have been terminated prior to the effective date of cancellation.

With regard to an undisclosed driver, paragraph (1)(D) might apply. Paragraph (2) would apply if an undisclosed driver also does not have a valid license. In either of these cases, the carrier would have to pay the claim but could then legally cancel the policy. I don’t see where failure to return the form would fit within any of these reasons unless the carrier actually inserts that requirement into the policy conditions.

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Can an Insurance Agent Decline to Place Coverage for Someone?

Question from an IIABNY member: We have had a client in the past couple of years cancel for nonpayment on his auto policy. The last two times were for not sufficient funds. He doesn’t qualify for any of our standard markets due to the payment history. If one of the nonstandard companies would take him back, are we obligated to write him again, or can we tell him no, due to his past payment history with our agency?

Answer: Unless you’ve signed a contract with the client promising to obtain insurance for him, you have no legal obligation to continue your business relationship with him. The New York Insurance Department (now the Department of Financial Services) issued a 2006 advisory legal opinion stating:

The Department’s longstanding position is that a broker may discontinue its relationship as a producer with an insured either during the term of the policy, or upon renewal time, absent contractual agreement to the contrary between the producer and the insured or the insurer. The terminating broker should advise the insured of the right to continue coverage with the insurer, and the right to choose a new agent or broker if the insured so desires. 

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Are No-Fault Benefits Taxable?

Question from an IIABNY member: If someone receives wage loss benefits under New York no-fault insurance, do they have to pay income tax on them?

Answer: According to the IRS Web site (look near the bottom of the page): 

Other compensation.   Many other amounts you receive as compensation for sickness or injury are not taxable. These include the following amounts.

• Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments.
• Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income.
• Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. [EMPHASIS ADDED]

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For How Long Can a Carrier Surcharge for an Auto Accident?

Question from an IIABNY member: I have been under the impression that an accident can be surcharged by a carrier for up to 39 months from the date of the accident until the next renewal. One of our carriers told me it is able to surcharge for 64 months. Is the surchargeable period a matter of state law or department regulation and company filings?

Answer: New York law limits the time period for which insurers may surcharge for traffic violations, but I don’t see a similar limit for accidents. New York Insurance Law Section 2335 states:

No insurer authorized to transact or transacting business in this state, or controlling or controlled by or under common control by or with an insurer authorized to transact or transacting business in this state, which sells a policy providing motor vehicle liability insurance coverage in this state shall increase the policy premium in connection with the insurance permitted or required by this chapter solely because the insured or any other person who customarily operates an automobile covered by the policy:…

(b) has been found guilty of a traffic infraction under any of the provisions of the vehicle and traffic law provided, however, that this provision shall not apply to a conviction for a violation which occurred during the thirty-six month period ending on the last day of the fourth month preceding the month of the effective date of the policy if such conviction consisted of:

(1) operating a motor vehicle at a speed of more than fifteen miles per hour in excess of the legal limit;

(2) operating a motor vehicle in excess of the speed limit, or in a reckless manner, where injury or death results therefrom;

(3) operating a motor vehicle in excess of the speed limit, or reckless driving, or any combination thereof, on three or more occasions;

(4) operating a motor vehicle while intoxicated or impaired by the consumption of alcohol;

(5) operating a motor vehicle while impaired by the use of a drug, within the meaning of section one thousand one hundred ninety-two of the vehicle and traffic law;

(6) homicide or assault arising out of the use or operation of a motor vehicle, or criminal negligence in the use or operation of a motor vehicle resulting in the injury or death of another person, or use or operation of a motor vehicle directly or indirectly in the commission of a felony;

(7) operating a motor vehicle while seeking to avoid apprehension or arrest by a law enforcement officer;

(8) filing or attempting to file a false or fraudulent automobile insurance claim, or knowingly aiding or abetting in the filing or attempted filing of any such claim;

(9) leaving the scene of an incident without reporting;

(10) filing a false document with the department of motor vehicles, or using a license or registration obtained by filing a false document with the department of motor vehicles;

(11) operating a motor vehicle in a race or speed test;

(12) knowingly permitting or authorizing an unlicensed driver to operate a motor vehicle insured under the policy;

(13) operating a motor vehicle insured under the policy without a valid license or registration in effect, except when the person convicted had possessed a valid license or registration which had expired and was subsequently renewed, or during a period of revocation or suspension thereof, or in violation of the limitations applicable to a license issued pursuant to article twenty-one or article twenty-one-a of the vehicle and traffic law; or

(14) two or more moving violations of any other provision of the vehicle and traffic law;

So, if a policy will be effective on January 1,2012,  the insurer may surcharge for convictions for violations that occurred from Oct. 1, 2008 through Sept. 30, 2011. However, New York Insurance Regulation 100 does not place a time limit on surcharges for accidents. It appears that any time limitation for accidents would result from a carrier’s rate filing.

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Catch This: Merrill Lynch Must Repay Ballplayer

Former Red Sox Catcher Wins Claim Against Merrill

Former Red Sox catcher Doug Mirabelli has earned another victory, this time off the field.

An arbitration panel ruled on Jan. 13 that Merrill Lynch must repay Mirabelli more than $1.2 million in damages and fees for providing inappropriate investment advice to the two-time World Series champion and his wife, Kristin.

“It’s rare for a FINRA (Financial Industry Regulatory Authority) arbitration panel to award every dollar amount of out-of-pocket loss,” said Barry Lax, Mirabelli’s lawyer, in an interview.

Lax estimates that less than 5 percent of the cases he has dealt with in his roughly 20 years in the industry have resulted in this type of full-repayment ruling — where the claimant receives the complete original investment, in addition to all legal fees and associated arbitration costs.

“The panel basically put the Mirabelli’s back in a position that they would have been in had they never met Phil Scott (the Merrill Lynch adviser),” he said.

The case was argued against one of Merrill’s top advisers, Scott, a Bellevue, Washington-based broker who has been with Merrill for nearly three decades. Scott was ranked the top adviser in Washington State last year by Barron’s and managed about $1.1 billion in client assets.

The Mirabelli’s invested about $1.8 million, all of their liquid assets, with Scott in early 2008, according to Lax. Scott then put those assets into his team’s income portfolio, which is made up of 33 dividend-paying growth stocks.

Because the account was collateralized through loans, if the value of the account fell below $1 million in value, they would need to sell out of the securities held in the accounts — which is what happened in November 2008, amid an industry-wide meltdown of financial markets.

The result was a roughly $800,000 loss for the Mirabelli’s.

Lawyers for the couple argued that Scott put the Mirabelli’s assets in “inappropriate” investments, offering the recommendation and purchase of unsuitable securities; in this case, an all-growth stock portfolio.

Merrill Lynch spokesman Bill Halldin said the firm disagreed with the panel’s decision, given the facts presented in the case.

“This account was handled properly during a very difficult time when there was extreme market volatility,” he said.

(Reporting By Ashley Lau; Editing by Bernard Orr)

via www.insurancejournal.com

Doug Mirabelli had to catch Tim Wakefield's knuckleball all those years he was with the Red Sox. In my opinion, the $1.2 million is hazard pay.

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Order in the Court: Contractor's Condition Endorsement

Yangtze Realty, LLC v. Sirius America Insurance Co.

The plain meaning of the exclusionary clause invoked by the defendant bars coverage for, inter alia, property damage arising out of work performed on behalf of the insured by a subcontractor where no prior written agreement exists indemnifying and holding harmless the insured in the event of a loss (see Wilson v Sirius Am. Ins. Co., 44 AD3d 754). The defendant submitted evidence showing that the property damage in the underlying action was caused by the work of a subcontractor hired by the insured plaintiffs, and that the insured plaintiffs' written agreement with this subcontractor did not contain the required indemnity and hold harmless language. Accordingly, the defendant established, prima facie, that it was not obligated to defend and indemnify the plaintiffs in the underlying action (see Global Constr. Co., LLC v Essex Ins. Co., 52 AD3d at 656).

via scholar.google.com

Some insurance carriers have attached so-called "contractor's conditions" endorsements to Commercial General Liability policies covering contractors. A typical such endorsement will condition coverage on the named insured contractor obtaining hold harmless agreements and/or additional insured status from its subcontractors. If the named insured fails to obtain these things, the endorsement reduces or eliminates coverage for ensuing losses.

For those who may be inclined to think that the courts would never enforce such an endorsement, read this December 13, 2011 opinion from the New York Supreme Court Appellate Division, Second Department. The appellate justices dispatched the named insured's claim in four short paragraphs.

The lesson: Be aware of what's in the CGL policies your contractor clients are buying. Make sure your clients are aware. Document that your clients are aware. Look for better options in the market, including the excess line market, if need be.

No one wants to be surprised this way at claim time.

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