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            Big “I” National News

P&C Trends

Nationwide Wins Wind vs. Water Case

Judge rules flood claim excluded from homeowner policy.

On Tuesday, Aug. 15, a federal judge in Mississippi decided Leonard v. Nationwide, the first of many Hurricane Katrina-related lawsuits involving the interpretation of language in a homeowners policy regarding coverage for damage from wind and flooding.

The judge made several conclusions of law in this case, including that:

• “The provisions of the Nationwide policy that exclude coverage for damages caused by water are valid and enforceable…”
• “The wind damage is covered; the water damage is not.”
• “The Leonards have the burden of proving that the insured property was damaged or destroyed by a cause within the insuring language of the policy during the time the policy was in force.”
• “Nationwide has the burden of proving what portion of the total loss was attributable to water damage and was thus within the water damage exclusion.”
• “There is no evidence to support a finding that the insurance contract should be reformed.”

Based on the evidence, the judge decided that “[a]lmost all of the damage to the Leonard residence is attributable to the incursion of water,” which was excluded from coverage under the policy. Because some of the loss to the Leonard home was caused by wind, a covered peril under the policy, the plaintiffs were awarded $1,228.16 in damages for that loss.

The Leonards did not have flood insurance for their home, which was approximately 12 feet above sea level and not in Flood Zone A, where such coverage is required by federally insured lenders. Their insurance agent from Nationwide told them that he did not feel flood insurance was needed, from which the court determined that Leonard erroneously inferred that both wind and water damage would be covered under his Nationwide policy if the damage occurred during a hurricane.

Significantly, despite recognizing some ambiguity in some of the policy language, the judge was unwilling to reform or modify the insurance contract. This is important because some plaintiffs have suggested that policies excluding these damages should be re-written after the fact to add in such coverage, which carriers have argued against. In general, courts do not like to re-write the terms of contracts after the fact, so many in the legal community were not surprised that the court did not do so in this case.

The Big “I” will continue to follow the remaining Hurricane Katrina coverage lawsuits and will provide updates as events warrant.

Kathleen Graber (kathleen.graber@iiaba.net) is Big “I” associate general counsel.

!Exclusive!

Tech Update

Applied Systems Takes on New Partner, Prepares for ‘Major Release’

Applied Systems announced last week that CEO and Chairman James P. Kellner has a new ownership partner, Bain Capital Partners. Kellner and Bain Capital will be purchasing Applied Systems from Vista Equity Partners, Kellner’s previous partner. Insurance News & Views discussed with Kellner the new partnership---and what independent agents and brokers can expect going forward from Applied:

IN&V: How did the new partnership with Bain Capital come about?

PK:  It’s called a recapitalization of the business, that’s the best way to categorize it. I previously had a private equity backer called Vista Equity Partners for two years. In my previous recapitalization of the business (in 2004), I bought out the founder (Robert Eustace).

With a lot of the improvements I was able to make over the past two years, the business is worth more so Allied was able to take down profit. I had to go to the market to find a replacement private equity or acquirers who would co-partner with me in my business.

How did I go about doing that? I went back to my previous transaction two years ago and orchestrated a process where you basically re-sell your business to re-capitalize it with another private equity backer, Bain Capital. Baines is a first-class organization.

IN&V: The press release announcing the partnership references “aggressive growth plans” that are in the works. What can agents expect from Applied?

PK:  The focus over the last two years has really been on quality, which is something that, as the previous ownership changed two years ago when I bought the company from our founder, hadn’t been the focus.

We were ticking off features that were not highly rewarding to the base of our customers. We were introducing frequent features, but unfortunately they were fraught with defects because the cycles were not disciplined. You hate to pick on yourself publicly, but we just weren’t going through all the proper cycles to ensure a great automation experience time in and time out for our customer base. So I had the whole company recommit to quality.

It’s really changed us in the fact that, like a lot of businesses, if your quality is inferior, you have to spend a lot of time addressing your quality. So a more organized, disciplined development environment was created, which affords us the ability to bring a lot of new functionality capabilities to the market.

IN&V: Do you have new products that will be introduced soon?

PK:  Coincidentally with this whole thing, Applied Systems has adopted a major release discipline—(the timing is) not by design at all. We targeted to release in August a major release of all three products: Vision, TAM and Doris.

Applied Systems hasn’t been doing major releases, we’ve been doing minor releases during the previous four years. Our customers were always getting frequent but small updates, but the development environment did not always afford larger project-like enhancements to be incorporated into that release cycle due to the smaller window based on how we ran the company. With that said, here comes the release of version 4.0 of Vision, version 8.0 of TAM, and version 7.0 of Doris.

IN&V: What impact will the partnership have?

It’s a renewed commitment to a great user experience for our customers, which are our agents. It is the driver behind the passion to run the business in the first place---making it efficient. It drove us to real time and those types of things, historically. The quality foundation is something we really can build from.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

Legal Advocacy

Pension Protection Act Scheduled to Be Signed Today

President Bush is scheduled to sign The Pension Protection Act of 2006 into law today. Some of the key provisions of this comprehensive pension reform legislation, once signed, include: 1) requiring traditional pension plans be 100% funded within seven years; 2) making permanent retirement savings incentives created by the Economic Growth and Tax Relief Reconciliation Act, including indexed higher contribution limits for IRAs and 401(k) Plans; 3) permitting direct rollovers from retirement plans to Roth IRAs; 4) requiring plan administrators to comply with new disclosure rules; 5) mandating employers with “at risk” plans to accelerate contributions; and 6) making permanent the 2001 federal tax exclusion for withdrawals to fund higher education expenses from Section 529 plans.

IIABA’s Office of the General Counsel has prepared an Executive Summary, which focuses exclusively on the sections of the Pension Protection Act that may affect certain insurance agents and brokers. Those sections include:

• Section 601, which amends the Employee Retirement Income Security Act of 1974 (ERISA) and Section 4975 of the Internal Revenue Code (IRC) by providing exemptions to certain prohibited transactions in the rendering of investment advice;
• Section 844, which amends Section 72 of the IRC with regard to the treatment of annuity and life insurance contracts with a long-term care insurance feature; and
• Section 863, which amends Section 101 of the IRC relative to the treatment of death benefits from corporate-owned life insurance.

Once the act has been signed, the Executive Summary will be made available at www.independentagent.com in the member’s only portion of the Legal Advocacy section under Memoranda and FAQs.

Direct questions concerning the implications of the new law to IIABA Assistant General Counsel Amy Hendricks at 800-221-7917; amy.hendricks@iiaba.net.

Direct questions concerning the role and work of the Federal Government Affairs staff with regard to the new law to Assistant V.P. for Federal Government Affairs Tom Koonce at 202-863-7000; tom.koonce@iiaba.net.



On the Hill
Big Races Shaping Up in Connecticut, Montana

A look at some of the top races for InsurPac this fall continues this week with a look at who agents and brokers are supporting in two of the nation’s most interesting U.S. Senate races: Connecticut and Montana.

Connecticut Senate: Jaws dropped when three-term incumbent Joe Lieberman went down to cable magnate Ned Lamont in the Aug. 8 Democratic primary, but Lieberman filed immediately to run as an independent in the general election. Lieberman, a longtime friend of independent agents and brokers, is still considered by many to be the favorite for the general election. Republican Alan Schlesinger hopes to benefit from the Democratic split, but is running well behind.

There is plenty of evidence that despite Lieberman’s upset primary loss, the three-term senator, first elected in 1988, will return to the U.S. Senate. The 2000 Democratic vice-presidential candidate trailed by as much as 13% in late polls but closed strong, despite his opponent’s deep pockets, to lose by just 10,000 votes—less than 4%. Most polling in the three-way matchup pitting Lieberman against Lamont and Schlesinger shows Lieberman in front, with only one poll showing Lieberman and Lamont tied. And while Connecticut is a liberal-leaning state that hasn’t voted Republican in a presidential race since 1988, its voter registration is predominantly independent.

Furthermore, there is growing evidence that a number of Republican voters in Connecticut will support Lieberman rather than Schlesinger, who last held office as a state senator in the 1990s and is polling as low as single digits in a three-way matchup. Lieberman has an excellent chance to win among independents and Republicans, and if he maintains strong support among nearly half the state’s Democrats, he will be favored to win a fourth term.

InsurPac is strongly backing Lieberman and urging independent insurance agents and brokers to support him this fall.

Montana Senate: Two-term incumbent Republican Conrad Burns is in the fight of his life against Democrat Jon Tester, the State Senate president. Tester has held a small but steady lead in this race, with the exception of one recent poll showing a tie. Burns, a former Big “I” Legislator of the Year, has a history of coming from behind in the late stages of his campaigns, as he did in the 2000 Senate race against current Democratic Gov. Brian Schweitzer.

This will not be an easy race for Burns. Despite the fact that Republicans recently have dominated Montana at the presidential level, with President Bush winning the state twice by more than 20%, the Democratic Party has made tremendous gains at the state level in recent years. In 2004, Democrats swept the state elections, taking the governorship and the State Senate, and forcing a 50-50 tie in the State House of Representatives. Tester has proven himself a formidable candidate whose homespun manner and distinctive crew cut have given him considerable recognition among the electorate and helped him blow out the early favorite, State Auditor John Morrison, in the Democratic primary. Democrats see this as one of the top two or three races they must win to pick up ground in the Senate, and they are funneling money and logistical support to Tester on a massive level. Burns faces a difficult task if he is to be reelected to a third term.

Burns has been a champion of independent insurance agents and brokers, and will need their help if he is to prevail in one of the nation’s most closely watched races. InsurPac is backing him fully and urging agents and brokers to come to his aid.

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/government relations.

Forms & Substance

The REAL Value of a Renter's Policy 

Online “expert” sites mislead consumers.

While "expert" sites proliferate on the net, it pays to get advice from real subject experts. Below is a question-and-answer provided at a well-known consumer insurance Web site. Compare the response to the Virtual University’s faculty members’ answer.

"I was a renter in the same residence for nine years, and had an accidental fire that severely damaged one room. Not only did our landlords ask us to leave, but now his insurance company is coming after us for the claim. (We received none of this money, by the way.) We did not have renters insurance, which I am being led to believe would not have covered the dwelling, only the contents or my personal belongings. I have never heard of this, and I haven't recovered from my own losses. What are my rights and what can I do to stop this?"

"Expert" Web Site Response:

“You're right in believing that renters insurance only would have covered your personal belongings. Insurance for the structural space you are living in should be covered under your landlord's policy. Even if your landlord has not purchased landlords insurance, this does not mean that liability lies with you. According to [an insurance company that shall remain anonymous. - Ed.], the fact that you do not own the property means that you are not legally liable for damage done to it. You should ask your landlord's company to give you the rule in writing that allows them to come after you for payment.

“Disclaimer: We are consumer journalists, not financial planners or insurance brokers. So, while we try our best to answer your questions, nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.”

VU Faculty Responses:

Imagine the potential liability of an insurance agent if he/she gave this kind of advice! They have a disclaimer (see above) that they are only consumer journalists. Why not stick to consumer issues as opposed to technical insurance coverage advice? Would some states prohibit this as an unlicensed activity...either insurance or law? In any case, several of VU faculty members couldn't resist writing to the "journalist."

Below is one representative e-mail. Note that it reveals a critical renter's policy coverage that's often overlooked:

“First, a renter's policy (commonly called an HO-4 Tenant's Form) does, indeed, cover damage to the occupied unit, typically up to $100,000, under the Liability section of the policy. Normally, damage to property in your care, custody or control is not covered, but an exception is made for this and other situations.

“In fact, when I have trained agents in the past, I often make the point that the best candidate for a personal umbrella policy is a renter or condo owner who can negligently burn down the building in which they reside, along with the contents of others...not to mention the potential liability for loss of life. It's the liability insurance in a renter's policy that is of the greatest value, not the meager coverage typically provided on personal belongings.

“Second, with regard to the statement ‘According to [anonymous company], the fact that you do not own the property means that you are not legally liable for damage done to it. You should ask your landlord's company to give you the rule in writing that allows them to come after you for payment.’

“I can't believe that a [anonymous company] representative made this statement...most likely what he/she said was you usually cannot be held liable for damage to property you OWN, not property you do not own. As far as asking for the ‘rule’ in writing that allows them to come after you, you'll find that ‘rule’ in every freshman law book in the country. It's a fundamental legal principle that you have the right to recover for damages negligently caused to you or your property.

“So, the landlord's insurance company, under the right (by common law or contract) of subrogation, has every legal recourse against the tortfeasor as does the landlord. Most commercial property policies, though, allow the landlord to waive this right. Ultimately, it's up to the landlord as to whether the insurer can pursue this claim. The way this works in most cases is that the landlord's property insurer pays for the damages, then subrogates for recovery from the negligent person's liability insurer.

“The response in this article is completely inaccurate and a disservice to those who view it. Even though you have a disclaimer on the page, I suspect it would be in the best interest of [Web site] to remove or revise this article. I hope you will take this criticism in the spirit in which it was intended...to give notice that you have content with factual errors in order for you to be able to better serve your visitors and avoid any liability that may be incurred.

“If I or any of our expert faculty can be of assistance to you in the future, please feel free to let me know. [Web site] is an excellent site for its intended audience but, like all of us, we're not perfect and we can make mistakes. I hope this information helps.”

To read all of VU faculty members’ responses, click here.

Agency Management

Customers: Dissatisfied to Angry in 60 Seconds

Often customers come to you annoyed or irritated. Depending on how you and your staff interact with them, you can either deescalate their ire, or you can send it sky high.

There are several areas you should watch to make sure you're doing everything you can to keep upset customers from going through the roof.

One of the things that can irritate an already-upset person is your personal presentation. If he feels your grooming and dress are unprofessional or inappropriate, he is likely to hassle you. Some areas of personal presentation may have a negative influence on an upset person. We all make assessments of others, and those initial assessments are based mainly on personal presentation. Experts even claim that people make decisions about others within the first four seconds of meeting them:

Nonverbal Communication

Here are some ways your body language and voice tone may have an influence on an upset person:

• Facial Expression
• Body Posture
• Movement
• Gestures
• Smoking
• Touching
• Chewing Gum or Eating
• Voice Tone
• Sighing
• Cursing

Verbal Communication

The words you use with customers can help communications or they can start a fight. Here are some common “fight starters” and some suggestions on replacing them with “communication helpers”:

• Keep It Impersonal
  
  Fight Starter: "You didn't do this right."
  Communication Helper: "There are a few areas on this form that we need to complete."
  
• Use "I" Instead of "You"
  
  Fight Starter: "You're wrong."
  Communication Helper: "I can see there's been a miscommunication (or misunderstanding)."
  Fight Starter: "You're confusing me."
  Communication Helper: "I'm confused."
  
• Avoid Giving Orders
  
  Fight Starter: "You have to...."
  Communication Helper: "Will you...please?"
  Fight Starter: "Wait here."
  Communication Helper: "Would you mind waiting while I speak to my supervisor?"
  
• Take Responsibility
  
  Fight Starter: "I can't...."
  Communication Helper: "I don't have the authority. However, Mary should be able to help you. Let me get her."
  
• Don't Pass the Buck
  
  Fight Starter: "It's not my job."
  Communication Helper: "Let me see what I can do to help. John is the specialist in that area. Let me get him for you."
  
• Avoid Causing Defensiveness
  
  Fight Starter: "You never do it right."
  Communication Helper: "This is often not done correctly."
  Fight Starter: "You're always late."
  Communication Helper: "This payment is often late."
  
• Appear Helpful, Not Confrontational
  
  Fight Starter: "What's your problem?"
  Communication Helper: "Please tell me what happened."

People don't like to have problems, and they don't like others to know they have problems. Use the communication helper instead. These areas are a lot to be conscious of, so practice even with customers who aren't upset. Also, engage a co-worker or your supervisor in helping you become aware of any habits you have that would increase a customers upset. This way you can work on eliminating these annoyances.

For an expanded version of this article, click here.  

Rebecca Morgan (rebecca@RebeccaMorgan.com) is a speaker and seminarist.