Time Shares

We include this note on personal insurance in our commercial newsletter because so many of the executives of our client companies personally own time share condominiums.

Time shares typically do not generate a substantial first-party (property) exposure, but what about third-party liability? The potential for serious bodily injury and even death is certainly there, during “your” weeks as well as the rest of the year. If you are named in the litigation, are you insured?

By the homeowners association -- maybe, but to what level?

By your own homeowners and personal umbrella policies -- maybe.

We are not aware of any decisive court decision on this subject. We suspect -- but are far from certain -- that the personal liability coverage of the typical “upscale” homeowners policy would respond. We are less sanguine, however, about coverages under a personal umbrella. One major underwriter of such policies has told us, “No”, unless the time share has been declared to the insurer.

Our advice? Tell your insurance representatives if you own a time share unit.

Don Way
CEO

Other States Coverage

How your workers compensation policy works. The policy covers your operations in the states listed in item 3A of the information page. Coverage applies to all workplaces listed on the information page and all other workplaces in states listed in item 3A of the information page unless they are covered by other insurance or self-insurance. Note that the policy is designed to cover your entire liability under a state’s workers compensation laws rather than to cover specific workplaces.

The danger is that a firm may have employees subject to the workers compensation laws of one or more other states and, for one reason or another, fail to recognize the need to add such states to its policy. That potential gap is picked up under 3C, “Other States Insurance”, which affords both workers compensation and employers liability coverage if the insured begins work in one of the states listed in item 3C. Since item 3C affords “just in case” protection, you want coverage to be as broad as possible. That is why it is generally recommended that you include all states except the monopolistic states and states listed in item 3A.

If you do begin work in a state listed in item 3C, the Other States Insurance will apply as though the state were listed in item 3A. If the insurer is not permitted to pay the benefits directly to the persons entitled to them, the policy will reimburse the insured for the required benefits. That provision is intended to assure that you have coverage even though the insurer is not licensed in a particular state. Other States Insurance is intended to provide only temporary coverage for new exposures. Under Part Three – Other States Insurance, if you have work on the effective date of the policy in any state not listed in item 3A, coverage will not be afforded for that state unless the insurer is notified within 30 days. Otherwise, Part Three requires that you tell the insurer at once if you begin work in a state listed in item 3C. This allows the insurer to establish servicing arrangements, make appropriate certifications with state authorities, and collect applicable premiums. However, problems can occur when your insurer is not licensed in an item 3C state. For one thing, your insurer would likely want to be involved with the claims process, and doing so could cause problems for an unlicensed insurer. Moreover some states do not consider coverage under item 3C adequate insurance, which could result in fines and penalties for the insured.

Our advice? Tell your insurance representative if you’re doing business in other states.

Coverage for an Affair?

The Eighth U.S. Circuit Court of Appeals ruled that a philanderer’s insurer did not act in bad faith by refusing to defend him against the cuckold husband’s lawsuit alleging alienation of affection, intentional infliction of emotional distress and negligent infliction of emotional distress.

In Pins v. State Farm Fire and Cas. Co, -- F.3d --, 2007 WL 414365 (8th Cir. Feb. 8, 2007), Pins had looked to his personal liability umbrella carrier, State Farm, to defend and indemnify him. Upon State Farm’s refusal, Pins sued State Farm in South Dakota state court alleging breach of contractual duty to defend and bad faith, seeking declaratory judgment.

State Farm removed the action to federal court and, applying South Dakota law, the district court granted summary judgment in favor of Pins. Upon appeal, the Eighth Circuit reversed the district court’s ruling, stating that State Farm had no duty to defend Pins against the alienation of affections claim. The policy’s coverage for “loss” extended only to “accident(s) … which result in bodily injury.” The policy excluded coverage for injuries expected or intended by Pins. The Eighth Circuit concluded that, “in these circumstances, any ‘loss’ to the cuckold was ‘expected or intended’ by Pins and could not be deemed an accident.”

Data Loss Threat

One in three global businesses see loss of data as a significant threat and the key issue to address in operational risk management planning, according to the latest global risk briefing report conducted by the Economist Intelligence Unit and sponsored by ACE European Group.

The survey of 181 senior executives and risk professionals revealed that loss of data was the most important consideration in terms of operational risk, with over 40% saying their organization focused more on loss of data than other issues – including systems failure, human error and even natural disasters.

Smaller businesses, which often pay little attention to this exposure, might do well to reflect on big business’ concern.

Fiduciary Liability

Two out of three private companies do not purchase fiduciary liability coverage, according to research commissioned by the Chubb Group of Insurance Companies. Yet 20 percent of these companies plan to reduce or eliminate some employee benefits this year, leaving themselves exposed to potential fiduciary liability lawsuits.

“Employees and retirees who see their pension savings and other company benefits wither away often respond by suing their employers, benefits administrators and plan fiduciaries,” said Christine Dart, vice president, Chubb & Son, and assistant fiduciary product manager, Chubb Specialty Insurance.

The Administrative Office of the U.S. Courts reported a 25 percent increase in the number of cases being filed under the Employee Retirement Income Security Act (ERISA) from 9,167 in 2000 to 11,499 in 2004.

“In addition to purchasing adequate fiduciary insurance coverage, risk managers can help protect their company, benefits administrators and plan fiduciaries from liability by implementing certain risk-mitigation steps,” said Dart.

$10,000 Per Family

America’s legal system imposes an economic cost of more than $865 billion every year, or more than $9,800 per family, according to a new study released by the Pacific Research Institute (PRI), a free-market think tank based in San Francisco.

This figure is 27 times more than the federal government spends on homeland security, 30 times what the National Institutes of Health dedicate to finding cures for deadly diseases, and 13 times the amount the U.S. Department of Education spends to help educate America’s children.

The authors of “Jackpot Justice: The True Cost of America’s Tort System” calculated that the nation’s tort system imposes a yearly “tort tax” of $9,827 for a family of four and raises health care spending in the U.S. by $124 billion. Other researchers question its methodology.

Never-Ending Health Care Cost Inflation

Health care spending in the U.S. might be $4.1 trillion by 2016, nearly double 2006, government economists predicted recently. That prompted concern that Americans can’t keep paying for cost increases that outstrip the growth of the economy.

The health care bill will average $12,782 for every man, woman and child in 2016, an increase from $7,498 this year, said the report published online by the policy journal Health Affairs. Health care costs will account for nearly 20 cents of every dollar that Americans spend in 2016, up from about 16 cents today.

And by 2016 – even before most baby boomers retire and become Medicare recipients – federal, state and local government will be picking up nearly half the national health care tab. That would put pressure on Congress to curb benefits, raise taxes or both.

“This is really the key issue for the fiscal future of the nation,” said Robert Bixby, executive director of the Concord Coalition, a private group that promotes reducing the federal deficit.

“If health care costs continue to drift up – unless you dramatically raise taxes – you will have health care pushing out everything else government does. Nobody can say exactly when you reach a point that it’s unsustainable, but you can look at something and say it’s unlikely.”

The report by the government’s Center for Medicare and Medicaid Services follows a recent private study concluding that the United States spends far more on health care than other advanced countries, with no measurably better result.

Even after adjusting for greater disposable income here, the report by the McKinsey Global Institute – a private economic think tank – found the costs in the U.S. were $1,645 a person higher than in countries such as the United Kingdom and Germany.

It attributed the excess costs to higher administrative expenses, drug prices, doctors’ incomes and other factors.

Another CA Work Comp Rate Cut

The Workers Compensation Insurance Rating Bureau of California (WCIRB) recommended that workers compensation insurance rates be reduced by 11.3% this summer. This marks the eighth consecutive reduction proposed by the WCIRB. The WCIRB stated that it based its recommendation on the continued decline in the cost to employers of treatment and benefits for job-related injuries. In addition the number of workers compensation claims has decreased. If adopted by the commissioner, the rate cut would bring the total to 64% since July of 2003.

Of course, some employers will see more of a cut and some less (or none at all). Pricing of workers compensation insurance is complex.

And the last time, just over ten years ago, California went through a period of large rate cuts it was followed by a large number of insurer insolvencies.

We hope today’s insurance commissioner does a better job.