WHAT ATTORNEYS NEED TO KNOW ABOUT INSURANCE, Part 3

This is the title of an article of mine published in the Tennessee Bar Journal and a subsequent Bar Association webcast.  With the permission of the TBA, I would like to share with you in the next few newsletters.  This continues the list of ten (10) items.

Having invested over a half century of my professional career in the Property and Casualty insurance business, the last decade being involved as a consultant and expert witness, I feel an urgency to mention a few areas that can be of help to attorneys.

  1. Do insurance agents have binding authority from their companies? Contrary to popular understanding, all insurance agents do not have authority to bind all coverages, verbally or in writing, for companies with which they might place business. The “direct writers” (such as State Farm Insurance Company) generally have agents who are employed by their company and are given guidelines as to coverage that they can and cannot accept on behalf of their company.  In contrast, “independent” agents typically represent many insurance companies and have a contract with each company specifying what and when coverage can be bound.  Of course when a coverage is legitimately bound by an agent, that coverage is the responsibility of the appropriate insurance carrier.
    Many agents have contacts with “Excess and Surplus Lines” insurance carriers   (such as Lloyds of London) which are normally not licensed by state Insurance Departments, but are on lists of Approved Non-Admitted Carriers.  Usually the more difficult business to place is with these carriers. Normally agents do not have authority to bind these carriers, without prior approval.  Typically, the local, independent agents have access to the “excess and surplus lines” carriers via a “broker” or “managing general agency” for that non-admitted carrier.  This “middle-man” set-up sometimes makes it confusing in establishing fault when an obvious error has been made in the process of providing insurance coverage.
  2. What difference does co-insurance make when settling a claim? Most property losses are not “total” losses.  To encourage an insured to purchase an amount of insurance that approaches total value, most property insurance policies are written with a co-insurance percentage.  The insured has a lower premium for this provision. This means that, at the time of a loss, should an amount of insurance not equal the percentage shown times the value of the property, the corresponding adjustment is made in the claim settlement.  Thus, the insured becomes a “co-insurer.” This subject is often poorly understood.  Sadly, many insurance agents do not understand the consequences.
  3. What are excess insurance policies?  Especially with today’s ever-increasing need for higher limits of insurance coverage, many insurance carriers (along with their reinsurers) are unable to provide adequate limits.  To fill this gap, other companies offer “excess” insurance coverage, making available higher and higher limits, sometimes in multiple layers.  Unfortunately, not all “excess” policies “follow form,” that is provide the same coverage as the primary/underlying policy.  This offers a special challenge to the insured and their agent and/or broker.

TO BE CONTINUED…

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Note: Information in these blogs is not intended to replace any legal or financial professional information.

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WHAT ATTORNEYS NEED TO KNOW ABOUT INSURANCE, Part 2

This is the title of an article of mine published in the Tennessee Bar Journal and a subsequent Bar Association webcast.  With the permission of the TBA, I would like to share with you in the next few newsletters.

Having invested over a half century of my professional career in the Property and Casualty insurance business, the last decade being involved as a consultant and expert witness, I feel an urgency to mention a few areas that can be of help to attorneys.

  1. Do insurance policies (contracts) fit into a similar mold? Unlike a few decades ago, insurance policies (composed of a Jacket, a Declaration Page and related Coverage Forms) are now much less likely to have any uniformity. In years past most insurance companies subscribed to national rating organizations (such as Insurance Services Office) that prepare and have their forms approved by the various insurance departments, on behalf of the companies.   Such is no longer the case. Even companies that belong to rating organizations often file for exceptions or use forms in areas of insurance that are not regulated. This requires close examination of each insurance policy and its related forms when analyzing insurance cases. The difference between forms may be as few as one or two words.
  2. What is the difference between a broker and an agent?  Although the terms are often used interchangeably, an insurance broker is technically a person who is paid by an insured to evaluate risks and seek insurance coverage for an insured.  In contrast, technically an insurance agent is an individual or company that represents an insurance carrier and receives a commission for placing business with that carrier. In some jurisdictions, a broker is licensed by the state, separate and apart from the licensing of an insurance agent. In actual practice, the distinction between broker and agent has been blurred, and both terms are used for those entities procuring coverage.
  1. What is expected of insurance agents?  Insurance agents are human beings, or companies comprised of human beings!  Therefore, perfection cannot be expected.  However, agents typically present themselves as experts in insurance coverages.  Many factors are involved in the determination of whether or not an agent acted in a manner that he should, when it comes to placing coverage.  One of the major factors involves the relationship between the agent and insured, and the length of time, and extent that the agent has in handling the insurable risks of a particular insured.  In my opinion, agents do not receive their commission from the insurance companies they represent by simply being “order takers.”

TO BE CONTINUED…

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Note: Information in these blogs is not intended to replace any legal or financial professional information.

WHAT ATTORNEYS NEED TO KNOW ABOUT INSURANCE, Part I

This is the title of an article of mine published in the Tennessee Bar Journal and a subsequent Bar Association webcast.  With the permission of the TBA, I would like to share with you in the next few newsletters.

Of course a corresponding declaration might be, “What insurance people need to know about the law and the legal system!”  Ideally, enough professional humility might prevail that each profession can complement the other.

Having invested over a half century of my professional career in the Property and Casualty insurance business, the last decade being involved as a consultant and expert witness, I feel an urgency to mention a few areas that can be of help to attorneys. Although many principles of operation and practice overlap in the two major divisions of insurance, this article primarily involves the Property and Casualty business.

The insurance business, not unlike the legal profession, is intricate and technical. The insurance trade involves a wide variety of skills, varying degrees of professional involvement and experience.  The range varies from minimum entry level and agency licensing requirements to graduate degrees and prestigious professional educational opportunities.

The complexity of the Insurance Industry must be realized. For example, the commonly used Comprehensive General Liability (CGL) policy contains 16 pages. A highly regarded book explaining the CGL policy has 238 pages of text and 100 pages of appendices.  A reference publication on the policy has over 1,500 pages.  The complexity of the industry is too often unrecognized.

Expressed in the form of ten questions, here are few basic areas with which, I feel, attorneys involving themselves with insurance cases should have a basic understanding:

  1. What is the purpose of insurance…is it not a form of gambling?  In the most basic form, the purpose of insurance is the transfer of risk from the individual (or company), known as the insured to a risk bearing entity, known as the insurer.  This system works successfully since the insured is able to transfer the risk for a relatively small payment (the premium), while the insurer facilitates the spreading of risk of loss by the application of the “law of large numbers.”  It is important that attorneys realize that all risk of loss is not transferable and that some risks are necessarily left with the insured, to be handled in some other manner.  This is sometimes done by simply assuming the risk themselves, or transferring it in another manner, such as contracts or reduction of risk.  Policy terms and exclusions are critical and most important. Incidentally, the principle of insurance is just the opposite of gambling.  Gambling creates a risk of loss that did not otherwise exist.  Insurance strives to transfer and thus minimize a risk of loss that is already present.

TO BE CONTINUED…

 

Note: Information in these blogs is not intended to replace any legal or financial professional information.

THE CUPBOARD WAS BARE

To remind you of the type  situation with which I deal as an insurance expert witness, I’ve summarized (in disguise) a case in which I was involved.

This case involved an insurance agency we shall call Not Careful Enough, Inc. that placed a huge liability account with a carrier that subsequently became insolvent. The act took place despite warnings about the company and instructions distributed within the agency about the potential financial problems.

The agency notified other insureds that they had placed with this carrier and replaced them with financially sound companies.  With agency personnel changes and communication breakdowns, the first the insured in this case knew of  the insurance company problem was when a tremendous liability claim was reported.  Complicating the problem was the fact the policy was written on a “continuous” basis with no specific expiration date, so long as premiums were paid, etc.

As in the children’s fairy tale rhyme, when old Mother Hubbard (the insured) got to the cupboard (the insurer), the cupboard was bare (broke).  Enter attorneys… and you can easily imagine “the rest of the story”.

My involvement in insurance related cases is not restricted to plaintiffs or defendants, nor to any segment of the insurance industry. In summary, my becoming an expert witness depends upon the following: (1) I am contacted, (2) Matter is in an area of my expertise and (3) I agree with the position.   How may we help you?

Note: Information in these blogs is not intended to replace any legal or financial professional information.

INSURANCE POLICY… INTERPRETATION RULES

For a quick reminder on some principles we have all learned through the years, here are five general rules that have emerged from a host of insurance cases:

  1. Ambiguities in an insurance policy will be interpreted in favor of the policy holder.  This means that undefined terms or unclear language will probably be interpreted to mean what the policyholder believes rather than the insurer’s interpretation.
  1. The duty to defend a lawsuit is much broader than the duty to indemnify. This means that if coverage is questionable, an insurer still has the obligation to defend the lawsuit so long as there is a “potential for liability” under any theory of law contained in the lawsuit.
  1. If there is a potential for liability under one cause of action in the lawsuit, generally speaking, an insurer must defend the entire action. This means that if a lawsuit is pleaded in 10 different causes of action, some of which are clearly not covered, a defense may still be owing if at least one cause of action provides a potential for liability under any coverage offered by the policy.
  1. “Exclusions” are generally given narrow interpretation. Close attention must be given to the wording of the exclusion.
  1. Don’t blindly accept the insurance company’s word for what may be covered or when a defense is owed.

Credit where credit is due:  Excerpts first from Business Insurance magazine article by attorney William M. Shernoff.   How may we help you?  

Note: Information in these blogs is not intended to replace any legal or financial professional information.

SOME RECOMMENDATIONS TO HELP YOU

My insurance consulting/expert witness business includes helping you find  answers to your concerns, in addition to using my research and half century experience  in  the insurance business.

I would like to recommend to you a newsletter coming from a Buffalo, New York law firm.  It is replete with discussions of coverage issues and case law, with a flavoring  of  humorous history.  Having appreciated this publication for some time, I have obtained permission  from Dan Kohane to share this with you.

(1)  You are invited to subscribe to this free e-mail publication “Coverage Pointers” by using the following  contact:

Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202

Offfice: 716.849.8942

E-Mail:  ddk@hurwitzfine.com
H&F Website:  www.hurwitzfine.com

(2)  This fine law firm is having a series of webinars that you, and/or your associates might want to join. This from the latest “Coverage Pointers”:

 “A Special Request for Claims Professionals: Would you have an interest in helping our folks in better understanding the insurance business?  We know it’s really important for our lawyers to understand your business and we want to schedule a series of webinars where our lawyers can learn from you.  We want to expose our lawyers to the business of insurance.  How do YOU evaluate cases?  How are reserves set and how can we better assist you in setting reserves and altering them as the case develops? How do you factor in costs and expenses? How does underwriting factor into our handing of your files? Why is budgeting so important?  What about timely reporting?  What and when do you need it?  What issues are you addressing for cyber security and how can we help in our practices?

We are planning to schedule a series of webinars-like our newsletter-at no cost- but intended to better educate us all.  If you would be interested in participating and have a topic in mind, please e-mail me (Mr. Dan Kohane  ddk@hurwitzfine.com.)

We will do all the work in scheduling and planning the event and no written materials will be required of you, unless you have something you would like to share.  We are very excited about this undertaking and are enthusiastic about your involvement, which is integral.

Our plan to begin the program in June, so please send me your notes so we can set our schedule. If CE credit is important to you, let us know and we will try to work that into our programming.”

I recommend this source to you.  We  need all the help we can get in comprehending the complexities of the insurance industry.

How may we help you?

Note: Information in these blogs is not intended to replace any legal or financial professional information.

HOW WE CAN HELP YOU! (Part 3)

attorneyA bit more good basic advice for attorneys using insurance consultant/expert witnesses.  From my personal, professional experience I say this is “right on”!

“Experience is a critical aspect of a consultant’s background”, says Frank A.  Chapman, V.P. and Risk Manager for  Enterprise Products Co. in Houston. He prefers someone who has at least 10 years of experience and knows about risk management, insurance company workings and the brokerage business, as well as the historical trends in policy language and what any changes mean.

  Mr. Chapman also looks for consultants with good communication skills“You don’t want one that is too technically oriented so that he can’t get the point he wants to make across to a juror.” he said.

Because using the right consultant is important, Mr. Chapman advises choosing one with a CPCU or ARM designation.  “That at least gives you the feeling they know the basic concepts of insurance,” he said.

But don’t rely solely on those designations, he cautioned.  “You must look beyond their credentials,” he said.  It’s important, Mr. Chapman said, to read copies of any depositions the consultant gave in prior cases, to review a list of cases in which the consultant participated and to know those cases’ outcomes.

Finally, Mr. Chapman added, it’s important to listen to a legal consultant who thinks your case is not solid and advises you to settle, even if you disagree.

“Don’t hire someone who will simply dance to you tune,” he said.

How may we help you?

Above information: Copyright Crain Communications, Inc. Reproduced and condensed by Professional Consultants & Services, Inc., with permission, Business Insurance, March 16, 1998.

Note: Information in these blogs is not intended to replace any legal or financial professional information.