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Weighing Class Action Reform's Shot in 2005   |   Settlement Talks Heat Up   |   The ABCs of LTC Insurance   |   CGL Change Affects Mobile Equipment, Increases Coverage Gaps   |   Can Autos Take a Vacation from Coverage?   | Big "I" National News   |

O N   T H E    H I L L
Weighing Class Action
Reform's Shot in 2005

Supporters of legislation to reform class action are optimistic that it will make its way through Congress when Senate Majority Leader Bill Frist (R-Tenn.) brings it to the floor early this year, according to recently published reports.

The bill is the same as S. 2062, the Class Action Fairness Act, which was introduced last year and stalled in the Senate under threat of a Democratic filibuster. It would curtail “forum shopping” by allowing for class action cases to be taken out of state courts and moved into federal courts. 

With the change in political dynamics that came about in the 2004 election, insiders expect the bill not to encounter the same procedural hurdles that sidelined it last year; easy passage in the House is expected once again, and bipartisan support for the bill is anticipated in the Senate, where Republicans now have 55 of the 60 votes needed to end a filibuster.

In 2004, the legislation was on the verge of passing the Senate, with 12 Democrats on board and a filibuster-proof majority of 62 senators ready to support the bill, but the deal came undone at the last minute. Most of the talk about passing the bill soon is confident.

Nonetheless, one unnamed Democratic staffer told the Bureau of National Affairs’ “Daily Report for Executives” that Democrats will insist on their right to offer amendments, and there is concern that two possible amendments, if accepted, could derail the bill. One would allow certain class actions with at least one plaintiff and one defendant from different states to remain in the state court system; another would provide guidelines to federal judges on choosing particular legal issues for class actions moved to federal courts from state courts. Additionally, it is being reported that a possible House version will differ significantly from the Senate bill, which could further complicate the prospects for passage.

Despite these concerns, the bill appears to have momentum with many members of both parties reportedly ready to support it. Additionally, President Bush has used the “bully pulpit” of his office in recent weeks to push for class action reform, as well as asbestos and medical-malpractice reform, in numerous appearances across the country.

Cliston Brown (cliston.brown@iiaba.net) is Big “I” director of public affairs. | T O P |

B R O K E R   F E E   I S S U E   U P D A T E
Settlement Talks Heat Up

Speculation about an immanent settlement between New York Attorney General Eliot Spitzer and Marsh & McLennan Cos. heated up this week with ballpark numbers between $600 million and $750 million cited. Additionally, insurance executives continued to weigh in on the industry’s investigations as Spitzer spent some time in the mainstream media courtesy of a feature article in People magazine.

According to a Wall Street Journal report, Spitzer and Marsh are very close to reaching a settlement. The article says that Marsh offered to pay $600 million, but Spitzer is pushing for $750 million along with a public apology. The paper’s sources say that “Marsh & McLennan has bristled at the potential statement of contrition for alleged wrongdoings at Marsh Inc.” because it “contends such a statement could leave individuals or the company vulnerable in expected litigation from shareholders and other states’ regulators.”

Spitzer also wants the settlement to “include the formalization of various reforms of Marsh’s business practices,” many of which the company already has implemented, the article says. The WSJ’s sources anticipate an agreement to be reached by the end of the month.

Bloomberg News reported that on Jan. 14, based on whispers of the settlement talks, Marsh’s shares had their biggest gain since October when Michael Cherkasky became Marsh’s CEO. Marsh’s stock reached $31.51 billion in trading, up 3.8%.

As speculation about a Marsh settlement abounds, insurance executives speculated on future investigations at the Insurance Information Institute’s ninth annual Property/Casualty Insurance Joint Industry Forum, held last week in New York. According to a survey of 100 executives, 92% think that the investigations will expand, and 67 think that most companies will settle charges against them in 2005. 

Also discussing the investigations is outgoing New York Superintendent of Insurance Gregory Serio, who has investigated the insurance industry’s practices alongside Spitzer. According to A.M. Best, Serio commented at the I.I.I. forum that regulators and lawmakers should use caution when creating new compensation and distribution laws. Serio said that there are situation where it is “appropriate to accept compensation from both and insured and an insurer.” He said the conflict is when a broker’s priorities shift “from serving the client to maximizing compensation by any means possible.”

Meanwhile, Spitzer rubbed elbows with celebrities (at least on print) as the subject of a feature story in the Jan. 24 issue of People magazine. Just a couple pages down from Brad Pitt and Jennifer Aniston was Spitzer, smiling at the camera along with his family. The article “The Enforcer” focuses on Spitzer’s personal background along with his upcoming run for New York governor. The article also discusses his investigations into the investment, mutual fund and insurance industries.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA magazine’s associate editor. | T O P |

L & H   T R E N D S
The ABCs of LTC Insurance

Ask a variety of independent agents whether their long-term care insurance sales are taking off, and you’ll get a variety of answers. While agents report scattered sales of the product, it can be a very protracted sale, especially when the customer is unaware and inadequately informed.

According to a recently released update of Genworth Financial’s Cost of Care Survey, LTC costs continue to escalate. The average annual national cost of a private room in a nursing home is $65,200, or $179 per day. This is a 13% increase over the 2003 daily rate of $158 per day. A semi-private room will cost an average of $57,700. The increasingly popular option of an assisted living facility has an average annual cost of $28,800.

The costs can vary significantly, with Alaska having the highest average cost in the nation at $191,400 for a private room, followed by New York City at $127,900. Missouri’s non-urban areas had the lowest average annual cost at $41,600. But regardless of where you reside, an extended stay will result in a catastrophic expense.

An old Bob Dylan (who, given his age, is probably a good candidate for coverage) song says, “When you ain’t got nothin’, you got nothin’ to lose.” Well, the millions of baby boomers nearing retirement have plenty to lose. If someone goes into a nursing home for an extended stay, i.e. longer than six months, he will be spending his retirement savings before Medicaid kicks in.

So your prospect is convinced the cost is burdensome, but what about the frequency of occurrence? Industry studies indicate that approximate two out of every five people will need LTC assistance for six months or more prior to their death. The relatively high frequency, coupled with the catastrophic expense, tends to fit the criteria of the need for insurance. Yet there is a disconnect among the general public. Among the reasons why: Confusion about government-provided benefits, procrastination to deal with an uncomfortable subject and, lastly, not enough people discussing the subject in an informed manner. In fact, the climate has chilled a bit over the past couple of years as consumer writers bash LTC coverage and insurance companies. If your clients end up needing LTC, will that consumer advocate be coming over to their house to take care of them?

Sell LTC in the same manner you would sell other risk exposures. Educate customers. Listen to their specific goals and objectives. Gather data. Then put a plan together and meet with them again. Keep the focus on “what happens if you need LTC?” Don’t be afraid to get customers’ children involved in you believe the parents respect their opinions. At the end of the day, LTC insurance is about risk management and allowing your customers to maintain a favorable lifestyle before and during retirement. And don’t forget to consider yourself as a prospect.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and life-health contributing editor for IA magazine. | T O P |

F O R M S   A N D   S U B S T A N C E
CGL Change Affects Mobile Equipment,
Increases Coverage Gaps

Have you looked at your mobile equipment coverage lately—does it comply with motor vehicle laws? The major change in the recently adopted 2004 commercial general liability policy is the redefinition of mobile equipment subject to state motor vehicle laws as autos. In the past, such vehicles have been handled by endorsement under the CGL policy. As of last month, they will have to be covered under the Business Auto Policy using at least two additional endorsements. And that’s just the beginning of what has the potential to be a tidal wave of coverage gaps and E&O claims.

ISO is revising the Aircraft, Auto or Watercraft exclusion and the auto and mobile equipment definitions in the 2004 edition of its CGL program (completed in December) to exclude coverage for bodily injury and property damage arising out of the ownership, maintenance or use of land vehicles that are subject to a motor vehicle insurance law.

Since 1941, the Commercial General Liability Coverage Form has provided coverage for bodily injury or property damage arising out of the ownership, maintenance, use or operation of “mobile equipment.” The CG 99 01 11 85 endorsement has been available to provide liability coverage for mobile equipment required to be registered for public road use. That endorsement has now been withdrawn as part of the 2004 changes.

ISO is revising the CGL Definitions section to amend the “auto” and “mobile equipment” definitions and the Aircraft, Auto or Watercraft exclusion under Section I - Coverage A. It is revising these definitions to state that mobile equipment subject to compulsory or financial responsibility laws or other motor vehicle insurance laws are now “autos.” Statutory coverage needs for such vehicles may be handled by an ISO Business Auto Policy for their over-the-road exposure.

This change may significantly increase the opportunity for coverage gaps and will almost certainly require increased diligence and time in evaluating exposures on the part of insureds, agents and underwriters. Therefore, it is critical that this change be discussed with agency and company personnel to minimize the chances of coverage gaps.

Among the issues to consider:

Multi-State Operations and Changes in MV Laws

One of the biggest logistical problems will be complying with varying and changing state MV laws. It would seem that, if there is any chance a piece of mobile equipment might be driven on a public road, it should be covered under the BAP to avoid a coverage gap. Also, what if MV laws change mid-term during the policy? Must every piece of mobile equipment in the state be reviewed whenever a MV law changes? How are agents expected to monitor and interpret such changes? Similarly, what if the garaging of mobile equipment moves from one state to another? Must agents not only be familiar with insurance laws and regulations in all states where insureds have operations, but also with all relevant MV laws?

Different Carriers, Different Forms

If the CGL and BAP are with different carriers, it is critical that the forms be concurrent. What if the CGL renewed Dec. 1, 2004, but the BAP doesn’t renew until Feb. 1, 2005? Will the agent or underwriter catch this and make the appropriate changes mid-term? What if forms between, or within, carriers are not all ISO forms? What if the auto exposure is currently written on a PAP? What if the insured only has a Hired and Nonowned auto exposure, perhaps written under an artisan contractor BOP policy?

Symbol 1

Will underwriters be willing to continue providing Symbol 1 liability coverage when the BAP could include various types of nontraditional auto acquisitions during the policy period? Will they even consider Symbols 2 or 4, or insist only on Symbol 7? Or, might they make use of the ISO CA 99 54 -Covered Auto Designation Symbol endorsement?

This is just the beginning of the discussion. For more, read “Mobile Equipment vs. Autos in the 2004 CGL,” available on the VU.  

Bill Wilson (bill.wilson@iiaba.net) is the Big “I” director of Virtual University. | T O P |

F O R M S   A N D   S U B S T A N C E
Can Autos Take a Vacation from Coverage?

Commercial insureds may take vehicles out of commission during certain times of the year. Likewise, personal auto insureds might winter in Florida and want to suspend their auto insurance for several months to save money.

The suspension of auto coverage is much more common in commercial lines than personal lines and, in fact, may be appropriate when a vehicle is used for only a small part of the year. Even so, there are pitfalls that must be addressed. Among the issues:

Business Auto Coverage Suspensions

There are two ISO endorsements that can be used to suspend and reactivate coverage. Various coverages can be suspended using the CA 02 40 10 01 - Suspension of Insurance endorsement (several states have their own forms). The coverages and autos indicated on the endorsement are suspended except for maintaining or testing covered autos on the insured’s property.

The insured can either exclude all coverages on all designated autos or autos in a class, or exclude selected coverages (Liability, Medical Payments, UM/UIM or collision, not comprehensive or specified perils) by class. A premium refund is included if coverage is suspended for at least 30 days. To reinstate coverage, use the CA 02 38 12 93 - Reinstatement of Insurance endorsement.

CLM Rule 102 specifies that the endorsement cannot be used for the following types of risks: (1) risks for which a certificate has been filed in accordance with a financial responsibility law; (2) risks subject to the requirements of any state or federal authority regulating motor carriers of passengers or property and (3) any other risks subject to compulsory insurance laws.

However, the ability to suspend coverage doesn’t mean that it’s a good idea. In particular, coverage should never be suspended unless the insured has inviolate procedures in place that prohibit the use of a vehicle, preferably under penalty of death. In fact, from a risk management standpoint, suspended vehicles should also be made inoperable.

Personal Auto Coverage Suspensions

Unlike the ISO Business Auto program, there is no standard suspension endorsement available in their Personal Auto program. Therefore, any personal auto suspension endorsement will be a proprietary form. Read it carefully and make sure you understand what it and isn’t covered. Then make sure your insured understands that, using the documentation cited above for business auto exposures.

Most PAP policies are written on a six-month basis. Unless a vehicle is going to be out of service for most of those six months, a suspension is probably not appropriate. In fact, it’s amazing that some folks with the financial means to afford a winter home and vacation for months at a time are concerned about saving, at most, a few hundred dollars on their auto insurance.

To read more, including several E&O caveats, click here.  

Bill Wilson (bill.wilson@iiaba.net) is the Big “I” director of Virtual University. | T O P |