Ask Tim

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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Ask Tim, Episode #29 -- Watercraft Insurance

This episode of the Ask Tim podcast shows our insurance geek struggling to stay warm while he talks about something that's no laughing matter -- the capsizing of the cruise ship Costa Concordia off the coast of Italy earlier this month. While very few of us will handle the insurance program for a multi-million dollar ocean liner, some main street agents might be asked to place coverage for the types of commercial watercraft found in Long Island Sound, the Hudson River, or the Great Lakes. In this episode, I discuss exposures to:

• Bodily injury, property damage and pollution liability
• Physical damage to the craft itself

I then look at the types of insurance needed for watercraft, including:

• Protection and indemnity coverage, which, unlike other forms of liability insurance, might not obligate the insurance company to provide the insured with defense
• Hull insurance

Other items noted in this episode:

• Look for more information about watercraft coverage in the Technical Guidance and Research section of the IIABNY Web site soon
• It gets cold in the Geek Cave in January
• J.B. survived the trauma of episode #28 and an amicable legal settlement has been reached

Download Ask Tim Episode #29- Watercraft Insurance

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Ask Tim, Episode #26 -- Cyber Liability Insurance

The latest episode of the Ask Tim podcast looks at cyber liability insurance. Highlights of the episode:

• The Sony Playstation Network got seriously hacked last spring
• Someday, my kids will write nasty things about me because of the Christmas gifts I got them
• Standard Commercial General Liability and Commercial Crime insurance policies do not cover loss of data
• The cost of data breaches can vary from $750,000 to $31 million
• Cyber liability insurance is taking off, to the tune of $800 million in annual gross written premium in 2010
• The key areas to focus on when reviewing a cyber liability insurance policy are:
  • Types of Coverage and Limits Available
  • Coverage Provided
  • Coverage Triggers
  • Types of Data Covered
  • Remediation Costs Covered
  • Remediation Coverage Services
• IIABNY members who are interested in buying this coverage for their own agencies should contact Brian Bixby.
• I recommend The Betterley Report as a good source of information on this line of coverage

Download Ask Tim Episode #26 -- Cyber Liability Insurance

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Does the Umbrella Cover a Driveway the Insured Doesn't Own?

Question from an IIABNY member: Mr. and Mrs. Jones own a house, the use of which they have granted to Mr. and Mrs. Smith with a life tenancy provision in the agreement.

The residence premises is a one-acre parcel of land in the middle of a field.  The whole field is owned by Mr. and Mrs. Jones.  The driveway to the residence area is not part of the one acre.  The tenants have the use of the driveway as stated in a written agreement.

Mr. and Mrs. Jones are additional insureds on the Smiths’ homeowners policy.  The provisions of the homeowners policy state: “Insured Location” means a. The “residence premises”; c. Any premises used by you in connection with a premises described in a. and b. above.

The HO underwriter advises that the liability language in the policy provides coverage for the driveway.

The umbrella policy usually provides coverage over the underlying unless an exposure is excluded in the umbrella policy.  Presuming that the use of the driveway is covered by the underlying policy, is the driveway exposure also covered by the umbrella?

Answer: Here’s how I see it. The umbrella policy in question defines “Insured Location” as:

...a one to four family dwelling, condominium, townhouse or a one to two family mobile home. Insured Location includes any primary, secondary and/or seasonal dwelling that is owned or occupied by you, as well as the other related, private structures and grounds at that location. (emphasis added)

Certainly you can make a good case that a driveway is a related grounds at the insured location because there is no reason to use the driveway if you are not staying at or visiting the dwelling. An exclusion in the policy excludes coverage for injury arising from property rented by an insured unless it meets the definition of insured location and is covered by underlying insurance. Therefore, if the insured’s primary liability coverage covers the driveway, the umbrella will, too. 

I note that the definition of “insured location” in the ISO Homeowners policy includes any premises used by the named insured in connection with the residence premises and the part of other premises, other structures and grounds used by the named insured as a residence and shown in the declarations or acquired during the policy term. Again, the driveway appears to meet this definition, so the underlying insurance should cover it.

Bottom line, it appears to me that this umbrella covers injury arising out of use of the driveway. Your mileage may vary, depending on individual claim situations.

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No Coverage for Intentional Sexual Harassment in New York?

Question from an IIABNY member: We could use your assistance in answering succinctly a client inquiry as to why admitted carriers in NY cannot remove exclusions from EPLI policies for intentional sexual harassment, other than defense coverage, by an insured person.

I have been told non-admitted companies can endorse on coverage and that it has to do with the 1970 amendment to the Civil rights act where Congress added gender as a protected class and subsequent case law interpreted this amendment to construe sexual harassment as a form of gender discrimination", but I would like something from NY regulation spelling out the restriction to admitted carriers so I can forward it to an attorney. Can you point me in the right direction?

Answer: I haven’t found a specific regulation that addresses your question, but I’ve found New York Insurance Department opinions and circular letters that touch on it. For example, a Dec. 20, 2005 advisory legal opinion states in part:

Liability insurance for intentional wrongs is prohibited, in part, because deliberate misconduct lacks the element of fortuity required of insurance contracts. Indemnification of a wrongful act is also proscribed because it is against public policy. For these reasons, the Department has consistently disallowed intentional discrimination (disparate treatment) claims to be covered under liability insurance policies. The Department does, however, permit coverage to be provided for claims arising from unintentional discrimination: disparate impact claims and employer's vicarious liability.

The department’s circular letter No. 6 (1994) elaborates on this point. What the department appears to be saying is that a liability insurance policy cannot cover the individual perpetrator of intentional sexual discrimination, but it can cover the employer’s vicarious liability for the act. For example, if Joe Smith, a supervisor for a restaurant, intentionally commits sexual discrimination, the restaurant’s policy will cover the restaurant but it will not cover Joe.

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Do Special Endorsements Cover Damage to 'Your Work'?

Question from an IIABNY member: Several carriers are offering a "your works" coverage endorsement in answer to the universal “your works” exclusion in GL policies.  The second and third attachment are from (company name deleted) and the fourth attachment is from (name deleted).   However, reading through these endorsements, we’re finding coverage is very limited for "your work", not just by limit.  We’re wondering if IIABNY can help with determining if "your work" is actually covered by these endorsements and give any type of claim example that might be covered by purchasing the endorsement. 

Answer: The ISO CGL policy excludes coverage for “ ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’ “ The exclusion does not apply if the damaged work or the work out of which the damage arises was performed by a subcontractor working on the named insured’s behalf.

The policy defines “your work” as (1) work or operations performed by the named insured or on its behalf; and (2) materials, parts or equipment furnished in connection with the work or operations. The definition includes warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of the work, and the providing or failure to provide warnings or instructions.

The “products-completed operations hazard” includes property damage occurring away from premises owned or rented by the named insured and arising out of “your work.” It does not include work that has not yet been completed or abandoned, but the definition creates a three-option test to determine whether work has been completed. Work is considered completed at the earliest of: (1) when all the work called for in the named insured’s contract has been completed; (2) when all the work to be done at a particular job site has been completed if the contract calls for work at multiple sites; or (3) when that part of the work done at a job site has been put to its intended use by someone other than another contractor or subcontractor working on the same project. Work in need of servicing, maintenance, correction, repair or replacement, but that is otherwise complete, is considered to be complete. The definition does not include property damage arising out of transportation of property or the existence of tools, uninstalled equipment or abandoned materials.

In order for the “damage to your work” exclusion to apply, the property damage must be to “your work” and it must be included in the products-completed operations hazard. If either of these is not true, the exclusion does not apply. For example, suppose a contractor’s job on a project is install the system that sets and maintains the temperatures for a building’s climate control system. Two weeks after the contractor finishes the work, a power surge following a reset of the system fries it. Subsequent investigation reveals that wiring was improperly attached to one of the control panels.

In this case, the installation of the temperature control system (“work or operations performed by the named insured or on its behalf”) and the control panels (“materials, parts or equipment furnished in connection wit the work”) constitute “your work”. In addition, the damage occurred away from the named insured’s premises and it occurred after all the work called for in the named insured’s contract was complete. Therefore, the damage is included in the “products-completed operations hazard.” Since the damage arose from the named insured’s work and is included in the products-completed operations hazard, the exclusion applies. Had a subcontractor performed the work that caused the damage, the exclusion would not apply.

One of the forms you sent covers the insured’s legal liability for damage caused by the insured’s negligent acts, errors or omissions while acting in the business or from defects in materials or in products the insured sold or installed while acting in the business. It covers damages for “faulty workmanship, material or design, or products", though it does not define these phrases. However, it appears that the claim I described above would be covered, as it involved faulty workmanship (improper attachment of wires) resulting in damage caused by the insured’s error. However, if a subcontractor did the work for the insured, this form would not provide coverage. This form provides coverage on a “claims made” basis, so coverage applies only to claims made during the policy period. According to the underwriting materials you sent, this product is not available in New York, probably because it is a claims made form.

Similarly, the second form covers the insured’s liability for “wrongful acts”, defined as “a negligent act, error, or omission by you within means, methods, techniques, sequences and procedures employed by you in connection with your operations; or from a defect in material or in a product manufactured, sold or installed by you while acting in your capacity as a manufacturer or contractor.” The improper installation performed in the example appears to meet this definition of “wrongful act.” As with the other form, there is no coverage for subcontracted work. This second form provides coverage on an occurrence basis, so it is more likely to be available in New York.

To summarize, both forms appear to provide some coverage for damage to the named insured’s work, but only one of the forms is available in this state. Both forms include several exclusions that will modify or eliminate coverage for some claims. For example, both contain pollution exclusions. I can’t address all possible claim situations here, but I can say that the forms at least partially address the “damage to your work” exclusion.

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Social Media, Meet Employment Practices Liability

Connecticut Firm Must Defend Firing Employee Over Facebook Comments

The story described in this report in today's Insurance Journal will probably become more common. Employer upsets employee; employee (foolishly) vents frustration on Facebook or some other Web site for the whole world to see; employee upsets employer; employer bids farewell to employee.

People have griped about their employers since the guy overseeing construction of the Great Pyramids said, "Get back to work, ye lazy (fill in the blank)." The difference now is that you can leave a permanent record of your venting before you've had a chance to cool off and ask yourself, "Gee, should I really have written that?" This is never really a wise thing to do, particularly with an official unemployment rate hovering just below 10 percent and the unofficial rate plus the underemployment rate considerably higher.

However, some employees will cry foul when they get dismissed over something they wrote on Facebook, sometimes with justification, and attorneys are ready, willing and able to take on the fight. This is reason #146 why firms large and small need employment practices liability insurance. The most benevolent of employers still have the real possibility of a summons requesting significant amounts of money for a former (or current) employee who feels he has been wronged. Nine out of ten of the firm's supervisors may be sweethearts, but that tenth one may be the dictionary definition of a jerk and may take personally a Facebook post made in both jest and poor judgment. That's the person who will land the company in court.

Facebook, Twitter, chat rooms, forums, etal., give people a false sense of anonymity; they're fooling themselves. I've read multiple reports lately of employers using Facebook as an applicant screening tool. I don't necessarily agree with using it that way (let he who does not have at least one embarrassing photo from his college days cast the first virtual stone), but it's happening. Now employers can just as easily track what their minions are saying on their "personal" Facebook pages. How they react just might win them some quality attorney time.

Have you had this conversation with any of your clients? What was the result? Spin your tales in the comments. I'm closing up the Geek Cave for the weekend. Enjoy!

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A Little Bit of This, A Little Bit of That

I'm getting ready to flee the Geek Cave for a Thursday night's cultural activities, but before I do, here is a smattering of some of the recent questions that have come across my e-mail:

Question from an IIABNY member: On the issue of an origination fee, there was a statement on the Dec page that it was fully earned. The carrier cancelled after one month.  Are there any provisions that would comment on the legality of a fully earned origination fee, specifically if the policy is canceled by the carrier?

Answer: The literature from the Insurance Department is a little thin. They mentioned it briefly in a Jan. 4, 2002 opinion: 

The Department views late payment fees, reinstatement fees, and premium installment fees to be properly classified as fees that are outside of the rating structure, and which do not have to be filed with the Department or included as part of the manual rates. Such fees may be charged separately and apart from the policy premium because the expenses that such fees are meant to deflect arise independently from the issuance, underwriting, or general maintenance of insurance policies.3 These fees arise in relation to the way an insured opts to pay the premium, or are incurred because of an individual insured’s lateness in paying the premium, and not in relation to the expenses incurred on behalf of insureds generally. However, certain other fees, such as "policy placement fees" and "origination fees," are part of the policy rate because they are part of the insurer’s expenses in issuing the policy. Such fees generally relate to underwriting and arise in relation to every policy issued.

In other opinions, the department has said that it has approved minimum earned premium filings where the insurer has shown that the MEP equals the cost of policy issuance. It’s possible that they have taken the same view of policy origination fees; in that case, the insurer could charge it even if it was the party that cancelled the policy.

Question from an IIABNY member:  If there is a package policy that is with an admitted carrier, and the carrier did not send notice of nonrenewal, and the insured orders the policy but does not pay the deposit, is the policy automatically renewed?  Would it be necessary for the carrier to send notice of cancellation for nonpayment?

Answer: N.Y. Insurance Law Sect. 3426(e)(1) states:

A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention:

(A) not to renew such policy…

Therefore, renewal is automatic. Subsection (c) of the same law 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… (emphasis added)

On or after the renewal date, the insurer can cancel for non-payment only after giving the insured 15 days’ notice. As a side note, the department has said that an insurer can bill the insured for the deposit prior to the effective date and then issue a non-pay notice timed so that cancellation will be effective on the renewal date (see the Jan. 4, 2002 opinion I linked to above). However, the insurer must give 15 days’ notice at some point, so there’s no retroactive cancellation if the insurer didn’t send the notice before the renewal date.

Question from an IIABNY member: Could you please advise as to the rules of governing duplicate coverage as respects Workers' Compensation and the ability to recover premium when there is duplicate coverage?

Answer: There really are no rules pertaining to this. Nothing in the New York Insurance or Workers Compensation Law sets any formal rules that carriers must follow in this situation. If more than one carrier issued policies in good faith, they’re all entitled to at least some premium to cover the policy issuance expense. About the best you can do is try to negotiate with one of the carriers a settlement that the insured can live with.

That will have to do for today. I have a 9 p.m. appointment with Peter, Walter and Olivia.

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Friday Pot Pourri: A Mish-Mash of Questions

It's after five on a Friday, and the research director's brain is officially oatmeal. At this point, the toughest questions I want to answer are, "What do you want for dinner?" and "Heineken or Sam Adams?" However, before I sprint out of the Geek Cave for the weekend, here's some answers to a few of the questions that have come across my e-mail and phone in the last couple of days:

• When it comes to an insurance agency holding a raffle, the New York Insurance Department says there are two requirements to avoid violating the anti-rebating law: The raffle must be open to the public, and "the ability to win or enter the raffle must not be an inducement for, or interdependent with the purchase or solicitation of insurance." If a raffle entry results in the agency soliciting the contestant's business, the raffle violates the anti-rebating law. I'm not sure why else an agency would hold a raffle, so take this under advisement.
• A life insurance company may have to pay the death benefit to the survivors of an insured who lied about his smoking habit when he applied for the insurance 10 years prior. However, the ultimate answer depends on the facts of the case and whether certain court decisions apply.
• A not-for-profit organization's bulk mailing that contains an advertisement for an insurance policy is not eligible for a reduced postage rate unless the organization promoting the policy is authorized to mail at the nonprofit rates at the office of mailing; the policy is designed for and primarily promoted to the members, donors, supporters, or beneficiaries of that organization; and the coverage provided by the policy is not generally otherwise commercially available.
• New York law requires insurers to obtain anti-arson applications for all policies insuring properties in New York City, Rochester and Buffalo for fire explosion except for those covering owner-occupied residential properties with less than five units.
• Insurers, agents and brokers have no statutory responsibility under the New York State Construction Industry Fair Play Act to provide the required notices to contractors.
• The ISO Commercial General Liability Coverage Form probably will not cover the insured's legal liability for a misleading advertisement, an unsuccessful transaction on the Web, or theft of information from the insured's computer systems. A specialty cyber-risk policy, the ISO Electronic Data Liability Coverage Form and the ISO Crime Computer Fraud and Funds Transfer Fraud coverages are the appropriate policies for these types of losses.
• A New York insurance broker may accept commissions and service fees for the same transaction.
• The insurance license for an agency cluster must name at least one actual person as a sub-licensee, but it should not list the names of the agencies that are members of the cluster.
• When a commercial package policy insured a property destroyed by fire, and the insured wishes to cancel the property coverage but continue the liability coverage, the only practical way to do so is to cancel the package and issue a standalone liability policy.

And that will close the book on the week of September 13. A blessed and enriching Yom Kippur to all my readers of the Jewish faith, and a restful weekend to all!

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What's the Time Limit for a Binder?

Question from an IIABNY member: What does New York State law say about how long a binder should be effective? I was hoping to find something that stated the period of temporary insurance could be 60 days as I have had two places recently want me to issue binders for one year!

Answer: The New York Insurance Law does not place a time limit on binders. I found a 1991 Insurance Department advisory legal opinion that states as follows:

January 23, 1991

This responds to your letter of December 18, 1990 inquiring whether any law in New York State says that a binder is in force only for thirty days and whether binder length is determined by information contained in the binder itself.

I restrict my research to the New York State Insurance Law. Chapter 445 of the laws of New York State, signed on July 10, 1990 (effective the same date) among other things amended the Insurance Law by adding a new subsection 3404(h). The new subsection defines "binder," as used in Section 3404, as requiring certain information and as obligating the insurance company to provide insurance coverage. The time length of the binder is not mentioned, nor does any other provision of the Insurance Law address the time length of binders.

Since the Department considers the binder to have the same force and effect as the policy itself, certain restrictions may apply as to cancellation and termination of the binder. For examples of such restrictions, please see Insurance Law Section 3425 concerning personal lines insurance and Section 3426 concerning commercial lines insurance.

Sect. 3404(h) states:

As used in this section, "binder" means a written document (1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders; a description of the property insured; a description of the nature and amount of coverage which shall be deemed to include the terms of the standard fire insurance policy except as conspicuously noted on the binder; the identity of the insurer and of the authorized representative executing the binder; the effective date of coverage; the binder number or the policy number where applicable to a policy extension, and (2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy. The cancellation of such a binder shall be governed at the minimum by the provisions of the standard fire insurance policy and the provisions of this chapter applicable thereto. No exempt organization, as defined in section five hundred ninety of the banking law, or licensed mortgage banker which originates mortgage loans shall, at the time of title closing for a loan secured by a one to four family residential real property, refuse to accept a binder, issued by an insurer, or a duly authorized representative of an insurer, licensed to do business in this state, as evidence that hazard insurance has been procured for the mortgaged premises. Nothing herein is intended to prohibit the mortgage banker or exempt organization from requiring the borrower to also furnish a receipt indicating that the annual or installment premium on such insurance policy has been paid.

This definition is silent on the length of time a binder can be in effect. Theoretically, a company could issue a one-year binder, but I think that’s just asking for a claims dispute. Eventually, the company needs to issue a policy.

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