This is a recording of a 16-minute Facebook Live video I did on October 15 about New York's sexual harassment prevention law.
This is horrible. Twenty people enjoying an autumn Saturday afternoon. Two of them who just happened to be in the wrong parking lot at the wrong time. Seventeen others being responsible by hiring a driver so that they could celebrate a birthday with some adult beverages and without endangering anyone else. One person doing his job.
All of them gone in an instant. The pain their loved ones are enduring today is unimaginable.
It feels crass to even raise this subject, but eventually the survivors will seek restitution. I know nothing about the limousine company that provided the vehicle and the driver, but the reports indicate the limo was the only vehicle in motion at the time of the accident. It seems logical to assume that the inevitable lawsuits will be filed against the limo company.
Here are the questions:
- How much Automobile Bodily Injury Liability insurance does the company carry?
- Will the limits be sufficient to settle the claims arising out of twenty fatal injuries?
- Did the company's insurance agent (or the carrier, for that matter) ever quote higher limits to the company's owners?
- If higher limits were quoted and offered, how did the owners respond?
The New York City Taxi and Limousine Commission requires a limo capable of carrying 16 to 20 passengers to carry BI limits of at least $5,000,000 per occurrence and $200,000 Personal Injury Protection coverage. However, this accident occurred in Schoharie County, which is a rural part of upstate. I searched the New York State Department of Motor Vehicles website and did not find a similar minimum limits requirement for the areas of the state outside New York City.
It's possible for a limousine service to operate in upstate with relatively low BI liability limits. A company that experiences an event like the one that occurred last Saturday may be put out of business without sufficient insurance limits.
This is a horrific lesson in why insurance matters. No amount of money will ever replace the precious lives that were lost on October 6, but it is unfortunately the only means we as a society have to compensate those left behind. When something like this happens, the quantity and quality of liability insurance coverage becomes extremely important. It seems likely that the limo service will have legal liability for this accident, and the owners will probably owe damages to the families whether or not there is enough insurance to pay for them.
Insurance agents, please let this remind you to always offer as much liability coverage, including umbrella coverage, as your underwriting authority permits. The cost of each additional $1 million in coverage gets progressively smaller because catastrophic events like this are fortunately rare.
I know that your clients ask you, "How much liability insurance do I need?"
When you get that question, slide a print out of a news account of the Schoharie limo crash across the table and answer, "A little more than enough to cover this."
All right, by now you should know that the whole "Two Minutes" label is metaphorical. But hey - at least it's not two hours, even if it may feel that way.
At any rate, the state building code may soon require certain buildings to have
diaper changing stations installed. This is yet another reason to discuss Ordinance or Law Coverage with your insureds who own commercial properties. Which of these alternatives would you prefer?
- Be a hero in your client's eyes after a covered loss because you suggested this coverage
- Have your name be synonymous with the contents of a diaper because you didn't
Your choice. I explain it all in the video.
2 Minutes with Tim: Ordinance or Law from Big I New York on Vimeo.
We got an email recently from a member with a question about one of his employees. The employee used to live in another state and was in a relationship that apparently did not end well. We didn't get the details, but there are allegations of insurance fraud. Our member said that the employee's former Significant Other is likely to blame, but that's not the story the SO has given to the police. Consequently, the employee has been charged with two felonies and two misdemeanors in the other state and was facing arraignment. The member wanted to know whether he was obligated to report this ugly mess to the New York State Department of Financial Services.
The short answer to the member's question is that a licensed employee must report it to the DFS, but the agency is not required to unless the individual is a sublicensee on the agency's licenses. However, there is another, potentially more serious issue.
Those of you who have followed the news for a few decades may remember that Congress passed a major anti-crime bill in 1994, promising 100,000 more police officers on the street and numerous other measures. One provision of that bill specifically addressed the insurance industry. It prohibits an individual who has been convicted of any felony involving dishonesty or breach of trust from willfully engaging in the business of insurance in interstate commerce. It also prohibits the willful employment of an individual with such a felony conviction in the business of insurance and subjects the employer of such an individual to criminal penalties.
What penalties, you might ask? Only a fine
of up to $50,000 and/or up
to five years in prison.
Now, a conviction on counts of insurance fraud is likely the very definition of conviction of a felony involving dishonesty or breach of trust. If this individual is convicted on these charges, our member simply cannot employ that person anymore.
However, there is a potential remedy. An individual who has had such a conviction may apply to the DFS for a waiver that would allow employment in the insurance business. The person must have “the written consent of any insurance regulatory official authorized to regulate the (insurer and/or its officers, directors, agents or employees)” before working in the insurance business. If our member's employee is convicted, that person would have to cease working in the agency unless and until the DFS provides written consent.
This is obviously very serious business. I doubt that many agencies have felons on their payrolls, but it could happen. Be aware and be ready to take necessary action.
As you may have noticed, today is Friday, July 13. Friday the 13th is traditionally seen by some better safe than sorry superstitious individuals as a day when one must take care to avoid catastrophe terminal embarrassment certain doom being unlucky. We here at Big I New York are, of course, above such silliness. As a rule, our staff members are stupid reckless confident enough to go on about their lives as if it were any other day.
However, when if the predictable unexpected happens, insurance is there to say I-told-you-so pay for the financial fallout. Here, in no particular order, from the home office in Harpursville, New York, are the top five Friday the 13th hazards and how prudent superstitious individuals and businesses avoid big trouble an eternal curse OMG-what-were-you-thinking accidental loss:
Ladders. Look, if you insure contractors, you know all about New York's scaffold law. Many scaffold law claims involve someone standing on a ladder and suddenly finding himself subject to the earth's gravitational pull in a most unwelcome way. The ladder shifts, it moves, it spins, it does the hokey-pokey, whatever, and a worker falls and gets hurt. But what about if someone walks under the ladder? The ancient Egyptions caught onto this one 5,000 years ago. Fortunately, while many Commercial General Liability insurance policies exclude coverage for an employee falling off a ladder, relatively few exclude coverage when someone tempts fate by walking under one. So far.
Black cats. I know someone who has a black cat. At some point, that cat must have crossed in front of her. You know what it did? It developed a taste for the water supply line leading from her plumbing system to her toilet. Said cat also had reasonably sharp cat teeth. The result was a pond in what was at one time her downstairs. It took six months and thousands of dollars from her homeowners insurance company to repair the damage. Against her better judgment, she still has the cat.
Mirrors. Ever stop to think how often you come across mirrors during the day? They're in multiple rooms in your home. There are at least three of them attached to your car. They're in public restrooms. And any one of them can break. Sure, your car insurance and homeowners insurance will cover the cost of broken mirrors if the amount of damage clears the deductible. And if your skin happen to contact the broken glass, medical insurance covers part of the cost to sew you up. But what do you do about the next seven years? Not leaving the house isn't an option. There are mirrors in there.
Step on a crack ... In general, I believe I caused my mother enough grief during my formative years. I don't want to be responsible for putting her in traction because I failed to step cleanly on a single panel of a sidewalk. However, should I chew gum while walking fail to pay attention, the good news is she has Medicare.
Umbrellas. No, not an umbrella insurance policy, though that would certainly mitigate my financial burden should Medicare choose to subrogate against me following the previous item on this list. I'm referring to opening an umbrella in the house. Generally speaking, unless one owns a black cat with a tendency to gnaw on water supply conduits, there is little need for an umbrella whilst indoors. However, the possibility can't be ruled out that someone may want to show off their brand new The Avengers: Infinity Wars umbrella in the living room. This could dislodge household furnishings, scratch walls, and potentially put someone's eye out. My advice is to make sure you're carrying either homeowners or renters insurance with high limits for both personal property and personal liability. Or make sure you're outdoors when you show off your umbrella. But that's just me.
So, if you're one of those people who believe in fate karma bad luck, these are the top insurable hazards and how you can cover them. If you have any questions or comments, look for me in the Big I New York lunchroom. I'll be the one tossing salt over my left shoulder.
Life insurance agents should take note of a ruling handed down by the U.S. Supreme Court a month ago. It involved one of an insurance agent's worst nightmares: The divorce of married clients. The dispute pitted a former spouse against her step-children and revolved around a relatively new law. The outcome has implications for life insurance policyholders in New York and elsewhere.
Mark Sveen and Kaye Melin, a Minnesota couple, married in 1997 and divorced ten years later. One year into the marriage, Mr. Sveen bought a
life insurance policy, named his wife as the primary beneficiary and his two children from a previous marriage as contingent beneficiaries. The divorce decree ending the marriage did not mention the life insurance policy, and Mr. Sveen did not change his beneficiary designations.
Upon his passing in 2011, his ex-wife and his children got into a dispute over the insurance proceeds. In 2002, Minnesota adopted a “revocation-on-divorce" law which holds that a divorce automatically revokes any revocable beneficiary designation of property made by an individual to his or her former spouse in a “governing instrument." The law defines “governing instrument" as including insurance or annuity policies and wills. Citing this law, Mr. Sveen's children argued that Ms. Melin did not have a valid claim on the life insurance proceeds, since her designation as a beneficiary automatically disappeared when the divorce was decreed. Consequently, they were the rightful beneficiaries under the policy.
Ms. Melin countered that argument by noting that her ex-husband bought the policy and named her as beneficiary in 1998, four years before the state adopted the revocation-on-divorce law. Applying the law to a policy sold before its enactment, she argued, would violate Article 1 of the
U.S. Constitution, which states in Section 10, “No State shall … pass any … Law impairing the Obligation of Contracts …" Therefore, she should receive the policy's proceeds.
A federal trial court sided with the children, but the appellate court agreed with Ms. Melin and held that retroactively applying the law violated the Constitution. The children appealed to the Supreme Court, which heard arguments last March. On June 11, the court awarded the proceeds to the children by a vote of 8 to 1.
Writing for the majority,
Associate Justice Elena Kagan said that the Contracts Clause in Article 1 applies to insurance policies. However, “not all laws affecting pre-existing contracts violate the Clause." To determine whether a particular law violates the Clause, she wrote, the Court must consider “the extent to which the law undermines the contractual bargain, interferes with a party's reasonable expectations, and prevents the party from safeguarding or reinstating his rights." In the case of the Minnesota law and Mark Sveen's life insurance policy, she said that the law did not do any of these things.
Justice Kagan wrote,
“…(T)he insured's failure to change the beneficiary after a divorce is more likely the result of neglect than choice. And that means the Minnesota statute often honors, not undermines, the intent of the only contracting party to care about the beneficiary term. The law no doubt changes how the insurance contract operates. But does it impair the contract? Quite the opposite for lots of policyholders."
“(E)ven when presumed and actual intent diverge, the Minnesota law is unlikely to upset a policyholder's expectations at the time of contracting. That is because an insured cannot reasonably rely on a beneficiary designation remaining in place after a divorce."
Lastly, she noted, “The law puts in place a presumption about what an insured wants after divorcing. But if the presumption is wrong, the insured may overthrow it. And he may do so by the simple act of sending a change-of-beneficiary form to his insurer. … The statute thus reduces to a paperwork requirement (and a fairly painless one, at that): File a form and the statutory default rule gives way to the original beneficiary designation." She cited cases dating back to the 19th century in which the Court held that laws imposing minimal paperwork burdens do not violate the Contracts Clause.
Associate Justice Neil Gorsuch, the newest member of the court, dissented. He pointed out that recent Court precedents held that a state law “substantially impairing" contracts violates the Contracts Clause unless they are “reasonable" in light of a “significant and legitimate public purpose." He wrote:
“No one pays life insurance premiums for the joy of it. Or even for the pleasure of knowing that the insurance company will eventually have to cough up money to
someone. As the Court concedes, the choice of beneficiary is the 'whole point.' ... So when a state alters life insurance contracts by undoing their beneficiary designations it surely 'substantially impairs' them."
He also argued that Minnesota could have achieved the goal of ensuring that insurance proceeds are not misdirected to a former spouse without impairing the insurance contracts. Further, he disagreed with the retroactive application of the law:
“A court can fine you for violating an existing law against jaywalking. That doesn't mean a legislature could hold you retroactively liable for violating a new law against jaywalking that didn't exist when you crossed the street. No one would take that idea seriously when it comes to crime, and the Contracts Clause ensures we don't when it comes to contracts, either."
Justice Gorsuch was a minority of one, so the Court reversed the appellate court's decision and awarded the life insurance proceeds to the children.
If you're reading this and you're a life insurance agent in New York, why should you care? Well, New York also has a revocation-on-divorce law,
Section 5-1.4 of the Estates, Powers & Trusts Law. Gov. David Paterson signed it into law on July 7, 2008, and its text is very similar to that of the Minnesota law. If you have clients for whom you have obtained life insurance, and you learn that they have divorced (and I realize the insurance agent is often the last to know), it might behoove you to inform the insured of this law. The Supreme Court has now ensured that the law will apply to life insurance policies you sold before July 7, 2008.
The insured may well say, “Good riddance," but it's possible that the couple parted on amicable terms and the insured still wants the ex-spouse to receive the life insurance proceeds. If that's the case, the insured will need to take action. He or she can't do that if they're unaware.
A word of caution: If you decide to provide this service,
consistency will be important. If you have attended Big I New York's annual errors and omissions loss control seminars, you have heard the attorneys who present them stress this. Do it for all your clients or don't do it at all. Part one of Murphy's Law implies that the one insured who does not get notified will be the one who has a contested claim. Part two states that Murphy was optimistic. Unless getting deposed is on your bucket list, you should implement air-tight procedures for doing this.
The Supreme Court's vote on this indicates that it was not a controversial decision. We can expect these types of laws to stick, so life insurance providers must be prepared for the consequences.
The New York State Department of Financial Services yesterday released its periodic report of disciplinary actions taken against insurers, agents, brokers and adjusters. I review each of these reports when they come out, for a couple of reasons:
- To see if any Big I New York members are named
- To see the types of violations for which producers are being disciplined
I often get questions from members that can be summed up as, "What will happen to me if I do X?" These reports give me examples that I can cite when I get those questions.
I'll leave out names (the report is a public document posted on the DFS website, so anyone can review it and find out identities), but here are some of the more eye-catching violations and consequences:
- "Respondents commingled insurance premium funds and personal funds. Respondents also collected an insurance premium from an insured and failed to timely remit said insurance payment to the insurer." -- $3,000 fine
- "Respondent issued a certificate of insurance for an insured when in fact no such policy existed." -- License Revoked
- "Respondents, in connection with the sale of automobile insurance policies, charged and collected different service fee amounts from numerous insureds. Respondents also in their service fee agreements stated the amount of the service fee to be charged as “up to” a dollar amount, which resulted in numerous insureds being charged different service fee amounts as stated above." -- $75,000 fine
- "Respondents, after the expiration of (its) insurance agent’s license, acted as an insurance agent in this State without a license." -- $180,000 fine
Regarding this last one, the size of the fine for this violation is unusual. In contrast, the same report cites an Illinois agency for acting as an insurance producer without a license, and the fine was $500. An attorney in Cooperstown was fined $650 for acting as an insurance producer without a license. For an agency to incur a $180,000 fine, the violation must have been pretty extreme. I wonder how many years the agency did business without a license.
More typical in the report are penalties for failing to disclose that the agency or individual producers had been targets of criminal proceedings:
- One upstate agent lost her license because she failed to disclose a misdemeanor conviction on four license applications (the original and three renewals.)
- A Long Island agent and broker lost his license for failing to disclose that he had been charged with a crime and for submitting documents to an insurer and the DFS that contained false information.
- A Manhattan agency paid a $1,500 fine for failing to report administrative actions taken against it by federal regulators.
- Two sublicensees of an agency in Queens lost their licenses after they were convicted of felonies.
- An upstate agent paid $1,000 for failing to inform the DFS within 30 days that she had been charged with a crime and for operating without a license.
Lastly, a few producers got caught essentially defrauding insurers out of charity money:
- One agent and broker submitted false receipts to a foundation in order to obtain matching charitable contributions. She also submitted false evidence of volunteer activities in order to receive a volunteer grant. She paid a $2,250 fine.
- Another lost his license for submitting false documents in order to get more than $40,000 from an insurer's gift matching program.
Here's the good news: There are thousands of New York licensed insurance producers, yet this disciplinary action report is only eight pages long. Now, is everyone who is breaking the rules getting caught? I don't think so. However, if cheating and lawbreaking were rampant in the insurance community, this report would be easily twice as long.
I know from the phone calls and emails I get that Big I New York members are very concerned about even accidentally breaking the law. The folks I hear from don't want to give the appearance that they might even possibly be doing something less than above board. Just yesterday I spoke with a member who was concerned about whether certain job titles for unlicensed employees would be a problem. Insurance producers are, as a group, pretty honest. You should feel good about that.
And if you ever are unsure about whether something is permissible or has to be reported or requires a new license, get in touch with us. We're happy to help, and none of us wants to see your name in one of these reports.
If your agency has governmental units for clients, you need to watch this video about a regulation you have to comply with by April 15.
An infographic for your reference (right-click on the image and choose "Save link as ..." or "Save image as ..." to download it):