American Association of Insurance Management Consultants

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6. The insurance application process now requires more attention. There was a time, in the not too distant past, when most applications for property and casualty insurance did not require the signature of the insurance buyer. Agents routinely completed applications and underwriters readily accepted them without anyone’s signature on the application. This custom and practice is no more. Insurance applications have become more than just tools to gather underwriting information to determine the eligibility of the applicant for coverage and for premium determination purposes. The necessity for thoroughness and precision has greatly increased. It is more than appropriate and appreciated by the underwriter for the applicant to provide supplemental answers and explanations along with the standardized application. These relatively recent changes in the usual and customary practices of making an application for insurance can make the difference between having a claim covered and not having it covered. An ambiguity or misunderstanding can become an allegation of misrepresentation, which can lead to no coverage at all, rather than just a possible increase in premiums. Policy rescission and voiding policies ab initio are on the rise, along with underwriters using application information as “Warrants” thereby making the application a part of the policy (which has always been the case with life insurance policy applications). These developments make providing accurate information to underwriters more than just important. Accurate information becomes the basis for the existence of the contract itself and adds an increased threshold to the concept of “utmost good-¬‐faith” which is the traditional basis of all insurance relationships. However, “utmost good-¬‐faith” is a two-¬‐way street. Insurance companies sometimes attempt to deny coverage based on conditions and exclusions that are not, and never were intended, appropriate to the situation or the claim at hand. Some prohibitions were intended to exclude coverage because the hazard is better transferred by another type of policy, not to be used to exclude an otherwise covered claim. This type of unfair claims settlement practice is rare and usually caused by poor attention to detail in the filing of a claim and/or inexperienced claims adjusters. The insurance buyer needs to be equally diligent and vigilant as to the accuracy of applications of insurance and in the filing of a claim under an insurance policy. Lesson: Insurance applications are more important than they once were. Plan and prepare in a careful, thorough manner before submitting an application for insurance or filing a claim.

David L. Stegall

Principal Consultant

Risk Consulting & Expert Services

MANDY CONNELL: We are dealing with significant brush fires, we’re going to have a really bad fire season, we have that here in Colorado and I thought it would be timely to bring someone on to talk about what a homeowner should do before the possibility of disaster strikes because we’re in a situation if a brush fire pops up near your home when you are at work you may not be able to go home again depending on the severity of the fire and its movements and things of that nature, so what kind of guidance can you give us in terms of preparing for a natural disaster before it happens? DAVID STEGALL: The best thing to do is it go through your mind and imagine that it’s already happening. You want to have a plan before you have to deal with it, and the Colorado authorities, the national forest service and there is a number of things, has all sorts of things on their websites as to the best way to protect your property from a physical standpoint, but the best thing to do from an insurance standpoint is to make sure you’re “insured to value” which means that you have enough insurance on your house to pay for it when it burns down and this is a serious problem, this is where more of acrimony between policyholders and insurance companies happen on any other issue, it’s the value of the dwelling and a lot of people are confused on this issue. They think “oh well the mortgage company told me I have a mortgage of a $180,000 and so that’s what I want the insurance for.

David L. Stegall

Principal Consultant

Risk Consulting & Expert Services

•Wrongful Designation by Thomas M. Braniff, JD, CPCU and Robert P. Gaddis, JD; •The Essential Bookshelf for Expert Witnesses by Kevin Quinley, CPCU, ARM, AIC; •The 411 on Becoming an Expert Witnesses by Elise M. Farnham, CPCU, ARM, AIM, CPIW; •Working as an Expert Witnesses by Douglas R. Emerick; and •“Be Careful What You DON’T Ask For” By Bill Wilson, CPCU, ARM, AIM, AAM.

Michael Gay

Owner/Principal Consultant

Michael Gay Consulting LLC

In today’s business climate more focus is placed on lean operations. This trend is becoming increasingly more commonplace as corporations are divesting of business lines and returning to core competencies. As decentralization continues to grow and corporations are relying on supply and sales agreements with non-related parties, the impact of a supplier or customer’s loss on a business’ operations increases substantially.

Scott E. Bushnell

Principal Owner – Executive Forensic Accountant

Business Interruption Consulting

Maintaining client relationships is critical for insurance brokers and agencies, especially given the fact that developing new commercial clients involves a significant time investment to understand the client’s business and risks and to implement solutions for risk transfer. Once insurance coverage is in place and policies are issued, the focus of the agency switches to servicing the account. The agency is happy. The client is happy. But what happens when your client experiences a significant property loss?

Scott E. Bushnell

Principal Owner – Executive Forensic Accountant

Business Interruption Consulting

Preparing business interruption claims takes thoughtful planning and insightful analysis, clearly communicated to all of the parties involved in the claims process. One of the most important factors is the breadth and depth of analyzing relevant financial information related to interrupted business operations. Although this may seem like an intuitive step, there is often a gap between the internally prepared financial information and the analysis to determine lost profits. Application of due diligence results in a smooth claim process, quicker payment from the insurer and a fair and equitable recovery.

Scott E. Bushnell

Principal Owner – Executive Forensic Accountant

Business Interruption Consulting

“Since its creation, “claims made” wording’s use has expanded outside of the “profession” and professional liability realm, finding use in diverse liability coverages. But the roots of “claims made” wording, and its most common use still, is found in covering the exposures created by a “professional’s” activities. As seen by the list of true “professions,” professionals are individuals who provide a service to society which, if done poorly, could cause extreme or irreparable personal or financial harm. … The expansion of claims made policy forms beyond “professions” caused the basic “claims made” concept to diverge and evolve into two distinct forms. One evolutionary branch commenced in professional liability coverages (known also as “errors and omissions” coverages in this series) and the second branch grew out of the financial services industry and the need for directors and officers liability protection, fiduciary liability and employment practices liability (referred throughout this series as “executive liability” coverages). Although both branches attach to the tree at the same point; greatly different “claims made triggers” have resulted. Additionally, coverage terms, conditions and definitions differ between the two branches.”

Frederick J Fisher

President

Fisher Consulting Group, Inc.

“Lawyers are advocates, and as such try to paint the best picture of the facts for their clients. It’s a good strategy in front of a jury or arbitrator, but not with an expert. The non-confidential information about the case that the other side is going to learn anyway should not be kept from an expert. Otherwise, a strongly favorable expert opinion can tumble like a house of cards on crossexamination. It can ruin your whole day, not to mention the case. Sometimes, your expert can do you an immense favor (if hired early) by identifying a truly hopeless case—one that should be settled before the other side realizes just how good their case is. But he or she can only do that with an accurate knowledge of the facts. A caveat: the attorney’s opinions about the case and confidential communications with the client should not be given to an expert, or they may become discoverable. There are ways to get damaging information to an expert without breaching the attorney‐client or work‐product privileges”

Frederick J Fisher

President

Fisher Consulting Group, Inc.

“Diminishing limits policies create a host of potential problems for insurance company claim departments. As is well known the insurance industry has long been plagued with “nuisance” claims. While in some instances insurance companies make quick settlements of nuisance claims to avoid defense cost expenditures, in others, insurers will attempt to resist such claims to avoid setting a precedent, thereby sending a message to the plaintiff’s bar that nuisance claims will not be honored. Considering that defense costs are deducted from the policy’s aggregate limits, either course of action places an insurance company in a difficult position. … “

Frederick J Fisher

President

Fisher Consulting Group, Inc.

“Directors and officers liability policies have long been issued on a “pure claims-made” basis (a phrase this writer first coined in 1990). That is, they were written with no prior act date (also known as a retroactive date). As a result, wrongful acts of the directors and officers dating back to corporate formation were covered as long as the claim was first made against the insured during the policy term. To minimize the singular risk D&O insurers were taking (i.e., “what probability exists that a claim will be first made against the insured during the policy term?”), they began using a “continuity date” and/or a “prior/pending litigation exclusionary” date that was the same as the inception date of the first policy issued. The date the insured first obtained coverage thus became known as the “first coverage date” so the “continuity date” could be honored at renewal. This was reinforced by a warranty within the application for coverage stating that the insured was or was not aware of facts, incidents, or circumstances that could give rise to a claim in the future.”

Frederick J Fisher

President

Fisher Consulting Group, Inc.

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Akos Swierkiewicz

Principal

Insurance & Reinsurance Consulting & Outsourcing Services (“IRCOS, LLC”)

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Akos Swierkiewicz

Principal

Insurance & Reinsurance Consulting & Outsourcing Services (“IRCOS, LLC”)

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Akos Swierkiewicz

Principal

Insurance & Reinsurance Consulting & Outsourcing Services (“IRCOS, LLC”)

From the Spring 2018 issue of the CPCU CLEW Interest Group newsletter.

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Kevin Quinley

CEO

Quinley Risk Associates LLC

Whether defending or litigating, success with Insurance Agent E&O cases can hinge on the discovery process and avoiding the paper blizzard that often comes with generic production requests. Produce too many documents and it is a waste of your valuable time. Produce too little and you might not find what you need. Since most insurance agents no longer utilize paper files, knowing exactly what to extract out of a computer system could make or break your case.

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Lee Hoffman

President

Lee M. Hoffman & Associates, LLC

I do not truly understand the rationale in suing the company adjuster in a lawsuit against the Insurance Company, since he has no independent duties apart from those of the Insurance Company. However, Directors and Officers of corporations owe fiduciary duties to corporate stockholders and to the Corporate business entity itself.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

I was often amazed at what I could only discern as an argument by a Plaintiff’s attorney concerning an insurance claim where he had never bothered to read the policy or have a true of understanding of insurance.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

Corporate Counsel is not properly the attorney to specifically respond for the Insurance Company to a suit against the Insurance Company.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

Insurance Companies need to strive for competent officers and directors.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

A hair-weaving certificate requires 300 hours of training. An individual selling reinsurance needs zero education and faces zero testing.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

It appears that the recent change in The State of Michigan workers compensation act extends Michigan’s jurisdiction to all Michigan Residents no matter where in the US (or the World) the resident is hired, works or is injured.

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Lee Hoffman

President

Lee M. Hoffman & Associates, LLC

For many small to mid-sized companies there is the overriding element of misplaced trust in the broker and a gross misunderstanding of their own duties.

Bruce Heffner, Esq.

Independent Company Legal Consulting / Attorney at Law

Boomerang Recoveries, LLC & Law Office of Bruce P. Heffner,

I have not figured out why reinsurance is not fully regulated, as is insurance. I have heard the logic that the parties to the contract are equally sophisticated, and therefor no regulation is necessary. The problem with that logic is that it assumes a premise that is false. Many of the parties do not have equal bargaining power; they are not equally qualified to enter into the transaction and there are no real arms length negotiations. Many small companies spend more on reinsurance each year then they could possibly receive from the sale of the building they occupy.

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Bill Wilson

Founder and CEO

InsuranceCommentary.com