David Thompson, CPCU, AAI aka “Dream Team 2” Jay Williams, CIC, AAI aka “Dream Team 1”

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“Nightmares on Insurance Street” Presented by:

The self proclaimed “FAIA Dream Team”

David Thompson, CPCU, AAI aka “Dream Team 2”Jay Williams, CIC, AAI aka “Dream Team 1”

Housekeeping• Class times

– 1:30 p.m. to 4:30 p.m.• Break

– One break – 13 minutes• DFS rules

– Phones, newspapers, etc

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Unauthorized Entity Issues

Verify with the DFS:–www.myfloridacfo.com–1-800-342-2762 / 1-877-MY-FL-CFO

The Important Stuff

The Dream Team Dilemma

Is our greatest asset…–Our intelligence–Our fantastic teaching ability–Our amazing good looks–Or….–Our humility!

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Our Web Site

Stump the Nerds

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BAP Temporary Substitutes

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BAP works just like a PAP All the same coverages follow over to a

temporary substitute Symbol used isn’t a factor

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Symbol 1 Any Auto Symbol 2 Owned Autos Symbol 7 Specifically Described Autos Symbol 8 Hired Autos Symbol 9 Non-owned autos

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From the Policy (Liability)

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Regardless of symbol, liability coverage for temporary substitutes is provided in the form.

From the Policy (Physical Damage)

SECTION III – PHYSICAL DAMAGE COVERAGE

A. Coverage 1. We will pay for "loss" to a covered "auto"

or its equipment…

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Temporary Substitute

Problem:–Liability coverage automatically provided–Physical damage coverage not provided

Solution?

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Symbol 8

Always add it to every BAP Is there a limit per vehicle? Solution for:

–Temporary substitutes– “Regular” business rentals for traveling

employeesAlso add CA 20 54 – Employee Hired

Autos

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Temporary Substitutes

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Coverage B - Homeowners

Short version:–10% of Coverage A–Covers structures worldwide–The 10% is part of Coverage A, and is not

additional insurance

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What is an “Other Structure”?–Set apart by clear space–On “residence premises”–Limit is 10% of Coverage A

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Important definition: "Residence premises" means: a. The one family dwelling where you reside; b. The two, three or four family dwelling where

you reside in at least one of the family units; or c. That part of any other building where you

reside; and which is shown as the "residence premises" in the

Declarations. "Residence premises" also includes other structures and

grounds at that location.26

Coverage B - Homeowners Important exclusions: We do not cover: a. Land, including land on which the other structures are

located; b. Other structures rented or held for rental to any person

not a tenant of the dwelling, unless used solely as a private garage;

c. Other structures from which any "business" isconducted; or

d. Other structures used to store "business" property. However, we do cover a structure that contains "business" property solely owned by an "insured" or a tenant of the dwelling provided that "business" property does not include gaseous or liquid fuel, other than fuel in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure.

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Endorsements:–HO 04 40 Structures Rented to Others

Used as a private residenceExtends liability and med pay

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Endorsements:–HO 04 42 Permitted Incidental

OccupanciesLimit applies separately from Coverage

BContents that are described are now

covered under Coverage C

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Endorsements:–HO 04 48 Other Structures – Increased

Limits Increases the Coverage B limitApplies only to the structure described

in the endorsement

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Endorsements:–H0 04 91:

Extends coverage to other structures not located on the “residence premises”

Cannot be used for a dwelling, rental, business, or business property storage

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Endorsements:–H0 04 92:

Similar to HO 04 91 but allows for location schedule/amount of coverage

Cannot be used for a dwelling, rental, business, or business property storage

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Coverage B – Swimming Pools

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Coverage A or B?

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Coverage A or B?

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Coverage A or B?

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Coverage A or B?


Flood Insurance Issues:–Coverage for detached garages only–10% of coverage limit (not an additional

amount)–Separate policy needed for other

structures

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Questions?

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Kid’s Cars

Best advice:–Title car to kid–Put on kid’s PAP–That way, parents can’t be sued–Saves everyone money

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“The insurance went up HOW much?”“It’s party

time!”

QUESTION Who is This?

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Kid’s Cars No matter how you slice the banana, it’s going to

cost you a ton to insure kids. To quote a student:

– “When my customers complain about the cost to insure kids I tell them they should have considered that in the heat of passion 16 years earlier.”

Before we go any further, how will this affect our

insurance in 16 years?

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Kid’s Cars – The Cost Pre-kid, two cars, high limits:

–$750 Kid turns 16:

–$1,250 Kid gets boring car:

–$1,850

Situation Parents:

–Assets to protect–PAP with high limits and umbrella

Kid:–Excited to drive–Cool car–Low limits

Tragedy: Kid hits car, serious injuries45

Avenues To Mom/Dad’s Wallet

1. Car registered to Mom/Dad 2. Child under age (Statutory, state specific) 3. Vicarious … “On a mission”

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Avenues To Mom/Dad’s Wallet

1. Car registered to Mom/Dad

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If your name is here…You’re gonna get sued!

2. Child Under Age -Statutory

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FS 322.09

(1)(a) The application of any person under the age of 18 years for a driver's license must be signed and verified before a person authorized to administer oaths by the father, mother, or guardian….

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(2) Any negligence or willful misconduct of a minor under the age of 18 years when driving a motor vehicle upon a highway shall be imputed to the person who has signed the application of such minor for a permit or license, which person shall be jointly and severally liable with such minor for any damages caused by such negligence or willful misconduct.

What About Age 18 & Older?Car in Child’s Sole Name

Situation:– Child is age 22, in college. Rents apartment.– Mom/Dad support child.– Mom/Dad claim child on taxes– Child has bedroom at house, stays there from

time to time– Child has no assets; parents have money– Child has wreck, kills someone. Would you try

to chase Mom & Dad for the money?

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Would YOU sue?

3. Vicarious – “On a Mission”

Analogy:–Producer uses his car to visit clients.

Agency sued. “Respondeat superior.” Situation:

–Dad gives kid list of eight places to go; post office, grocery store, Sonny’s, etc

–Child has wreck. Parent’s sued: “Child on a mission for parents.”

Or, changing tire52

Discussion Based on ISO Forms

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Main focus today is on liability coverage.

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Kid’s Cars – The Options 1. No car

– Good risk management 2. Car in parents’ name, driven by kid

– Generally the least expensive way; no coverage gaps

3. Car in kid’s name– Disaster waiting to happen

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1. Kid’s Cars – No Car List the kid as a driver for rating and

underwriting reasons–QUESTION: How does listing the kid as a

driver affect coverage?

No car,

sorry

!

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1. Kid’s Cars – No Car List the kid as a driver for rating and

underwriting reasons–QUESTION: How does listing the kid as a

driver affect coverage? As long as the kid is a resident family

member, he/she has all policy coverages Separate policy needed once the kid is no

longer a resident What is “resident?”

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2. Car in Parents’ Name List kid as driver – underwriting & rating Least expensive choice No coverage gaps Kid’s wreck = parents’ problem

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3. Car in Kid’s Name Huge potential problem What limits do parents often want to carry

on the kid’s car? Why?

–Cost–“My neighbor said…”–“An attorney said…”–“A guy in the bar told me…”

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Car in Kid’s Name -- Dangers Exclusion in parents’ policy voids coverage

for claims resulting from use of the kid’s car–Liability–Med-pay–Physical damage

UM and PIP

The Exclusion 3. Any vehicle, other than "your covered auto", which

is:a. Owned by any "family member"; orb. Furnished or available for the regular use of any "family member".However, this Exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is:a. Owned by a "family member"; orb. Furnished or available for the regular use of a "family member". 62

Examples – Under Mom/Dad’s PAP

Mom/Dad Get Sued Kid driving kid’s car

Sibling driving kid’s car

Friend driving kid’s car

Mom/Dad driving kid’s car

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Examples – Under Kid’s PAPMom/Dad Get Sued

Kid driving kid’s car

Sibling driving kid’s car

Friend driving kid’s car

Mom/Dad driving kid’s car

Limits? $$$$ 64

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Car in Kid’s Name QUESTION: If this option is selected what

recommendation is there to the parents?

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Kid’s Cars – Bottom Line If the car and policy are in the kid’s name,

assume the parents’ policy is worthless. Parents depend on kid’s limits if they are

sued.

Other Coverages Med-pay

–Same exclusions PIP

– If car in kid’s name, kid gets his/her PIP UM

–Save the debate…clone limits and stack it Physical damage:

–Kid’s policy covers kid’s car67

Other Thoughts… The moral issue of low limits for the kid Future wage garnishments How would Mom/Dad feel if THEY were hit

and hurt bad by a kid with 10/20/10?

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Kid’s Cars

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Drive Other Car (DOC) Coverage

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Recent change…only liability coverage available under DOC

Huge new gap created

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Coverages Provided:–Liability–Med Pay–Uninsured Motorist–Physical Damage

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Coverage NOT Provided:–Personal Injury Protection

Broadened PIP for Named IndividualsA MUST in FL and other no-fault states

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Who is an Insured:–Med Pay and Uninsured Motorist

Named insured and family–Liability and Physical Damage

Named insured and resident spouse–Gaps for family members other than the

spouse

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Comparison to Personal Auto Policy–Who is an insured–Endorsements available

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NFIP: RCBAP vs. CPP

Residential Condominium Building Association Policy

Commercial Property Policy Both policies cover building items the same

way Typically, coverages match

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NFIP: RCBAP vs. CPP

RCBAP – Property covered–The whole dang building!

FoundationsPaint, carpet, tile, cabinets, etcAdditions and alterations made at the

sole expense of the unit owner Compared to CPP

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NFIP: RCBAP vs. CPP

RCBAP – Unit owners make significant improvements/additions– Is RCBAP now under-insured?– Is there now a potential coinsurance

problem?

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NFIP: RCBAP vs. CPP

Replacement cost for flood is greater than replacement cost for property…always!

So…

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NFIP: RCBAP vs. CPP

Your answer is:–A. The RCBAP always has more

coverage than the CPP–B. The RCBAP and CPP are always

equal–C. The CPP always has more coverage

than the RCBAP–D. Not enough information to answer

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Condos – How We Can Help

I need:–Copy of RCBAP dec page–Copy of appraisal

Must include foundation and all building items

–Letter from lender with client name and loan number

NFIP

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Employees As Insureds – Business Auto Policy – CA 99 33 Employees are “an insured” under BAP

using any auto Employee is covered under BAP using

his/her own auto for business BAP is primary in all instances

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Employees As Insureds – Business Auto Policy – CA 99 33 Who is an Insured in the BAC

–Person or entity named–Permissive users–Exceptions/Exclusions

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Employees As Insureds – Business Auto Policy – CA 99 33 Coverage Provided by Endorsement:

–Liability–Physical Damage

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Employees As Insureds – Business Auto Policy – CA 99 33 Uses:

–Employees driving autos owned by themPrimary/excess issuesPAP/BAP analysis

–Traveling employees – rental carsLiabilityPhysical Damage

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Employees As Insureds – Business Auto Policy – CA 99 33

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Uninsured Motorists (UM) on Motorcycles

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Uninsured Motorists (UM) on Motorcycles

Cost for UM on cycles is very expensive Remember, the PAP excludes UM on

vehicles with less than four wheels UM must be purchased on a cycle policy for

coverage to apply

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UM on Motorcycles

FS 627.727 (1) No motor vehicle liability insurance policy

which provides bodily injury liability coverage shall be delivered or issued for delivery in this state with respect to any specifically insured or identified motor vehicle registered

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The Statute - 627.727

(1) No motor vehicle liability insurance policy which…–PAP–BAP–Motorhome policy–Motorcycle policy

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The Policy

INSURING AGREEMENT A. We will pay compensatory damages

which an "insured" is legally entitled to recover from the owner or operator of an "uninsured motor vehicle" because of "bodily injury":

1. Sustained by an "insured"; and 2. Caused by an accident.

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Compensatory Damages

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What are “compensatory

damages?”

Compensatory Damages

Summary:–Whatever the court awards!

Medical billsLost wagesLoss of limbsLoss of enjoyment of lifePain & suffering

–UM Covers a lot more than medical bills!98

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Will PIP, med-pay, or health insurance

cover these?

Stacked vs. Non-Stacked

Stacked Dollar difference

– More cars equals more money

Also, a coverage difference

Non-stacked Dollar difference

– Same dollars, regardless of number of cars

Coverage difference– Excludes some

claims that stacked covers.

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Stacked Exclusions A. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained by any

"insured": 1. If that "insured" or the legal representative settles the "bodily injury" claim and such

settlement prejudices our right to recover payment. However, this Exclusion (A.1.) does not apply to a settlement made with the insurer of a vehicle described in Section 2. of the definition of "uninsured motor vehicle".

2. While "occupying" "your covered auto" when it is being used as a public or livery conveyance. This Exclusion (A.2.) does not apply to a share-the-expense car pool.

3. Using a vehicle without a reasonable belief that that "insured" is entitled to do so. This Exclusion (A.3.) does not apply to a "family member" using your "covered auto" which is owned by you.

4. With respect to damages for pain, suffering, mental anguish or inconvenience unless the "bodily injury" consists in whole or in part of:

a. Significant and permanent loss of an important bodily function; b. Permanent injury within a reasonable degree of medical probability, other than scarring

or disfigurement; c. Significant and permanent scarring or disfigurement; or d. Death.

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Non-Stacked Exclusions

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Non-Stacked Exclusions A. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained: 1. By an "insured" while "occupying" any motor vehicle owned by that "insured" which is not insured for this coverage

under this policy. This includes a trailer of any type used with that vehicle. 2. By any "family member" while "occupying" any motor vehicle you own which is insured for this coverage on a

primary basis under any other policy. B. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained by any "insured": 1. If that "insured" or the legal representative settles the "bodily injury" claim and such settlement prejudices our right

to recover payment. However, this Exclusion (B.1.) does not apply to a settlement made with the insurer of a vehicle described in Section

2. of the definition of "uninsured motor vehicle". 2. While "occupying" "your covered auto" when it is being used as a public or livery conveyance. This Exclusion (B.2.)

does not apply to a share-the-expense car pool. 3. Using a vehicle without a reasonable belief that that "insured" is entitled to do so. This Exclusion (B.3.) does not

apply to a "family member" using "your covered auto" which is owned by you. 4. With respect to damages for pain, suffering, mental anguish or inconvenience unless the "bodily injury" consists in

whole or in part of: a. Significant and permanent loss of an important bodily function; b. Permanent injury within a reasonable degree of medical probability, other than scarring or disfigurement; c. Significant and permanent scarring or disfigurement; or d. Death.

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Non-Stacked Exclusions A. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained: 1. By an "insured" while "occupying" any motor vehicle owned by that "insured" which is not insured for this

coverage under this policy. This includes a trailer of any type used with that vehicle. 2. By any "family member" while "occupying" any motor vehicle you own which is insured for this coverage on a

primary basis under any other policy. B. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained by any "insured": 1. If that "insured" or the legal representative settles the "bodily injury" claim and such settlement prejudices our right

to recover payment. However, this Exclusion (B.1.) does not apply to a settlement made with the insurer of a vehicle described in Section

2. of the definition of "uninsured motor vehicle". 2. While "occupying" "your covered auto" when it is being used as a public or livery conveyance. This Exclusion (B.2.)

does not apply to a share-the-expense car pool. 3. Using a vehicle without a reasonable belief that that "insured" is entitled to do so. This Exclusion (B.3.) does not

apply to a "family member" using "your covered auto" which is owned by you. 4. With respect to damages for pain, suffering, mental anguish or inconvenience unless the "bodily injury" consists in

whole or in part of: a. Significant and permanent loss of an important bodily function; b. Permanent injury within a reasonable degree of medical probability, other than scarring or disfigurement; c. Significant and permanent scarring or disfigurement; or d. Death.

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So……

This exclusion is in the non-stacked form, but not in the stacked form:– A. We do not provide Uninsured Motorists

Coverage for "bodily injury" sustained:– 1. By an "insured" while "occupying" any

motor vehicle owned by that "insured" which is not insured for this coverage under this policy…”

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It’s the “owned but not insured” exclusion.No coverage with non-stacked.

Coverage does apply with stacked.

Owned Motorcycle

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300/500 Non-Stacked PAP UM$116 for six months

(Stacked $155)

$300K Cycle UM - $1451/year(Liability $119)

Broward County Zip Code

UM REJECTED!

Stacked PAP UM will respondon the motorcycle. (300/500)

Alabama Car

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Two Cars250/500 Non-Stacked

One CarUM Rejected!

Stacked PAP UM will respondon the Alabama car. (500/1,000)

UM On Motorcycles

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PEO (Professional Employer Organization) Tricks & Traps

When a “client company” uses a PEO:–No need for WC–No need for CGL–No need for any other policies–PEO provides all coverages for client

company–Great benefit for client company

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Co-employment Relationship:–Primary employer (PEO)

Pays employeesPays taxesPays SUTA & FUTAOffers Benefits

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Co-employment Relationship:–Worksite Employer

Hires/firesSalary determinationSupervisesOffers benefits

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Co-employment Relationship:–Contractual relationship

Client Services Agreement (CSA)Defines the exact relationship and who

is responsible for what

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Gaps Created by the CSA:–Newly hired employees

Client (WSE) must notify the PEONew employee not covered until

received AND approved–Uninsured sub-contractors

CSA does not recognize these as employees

Client is “naked”115


Other PEO “tricks”:–Can be “hidden” costs in the CSA

Set up and change feesWC claim feesGarnishment feesOther administration fees

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Other PEO “tricks”:–State Unemployment Tax (SUTA)

Tax “cutoffs” not honoredRates increased without notice

–High administration feesLead with WC – low pricing for high risk Increase admin to cover WC costsRates for master health plan

manipulated 117


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Fair Credit Reporting Act (FCRA)

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FCRA was renamed FACTA When renamed, there was no longer any

impact on insurance agencies and the MVR issue.–Agents can now supply MVRs to

commercial customers

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Key terms–Consumer report–Consumer reporting agency–Permissible purpose–Employment purposes–Adverse action– Insurance underwriting

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Consumer report: The term “consumer report” means any written, oral, or other

communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for:– (A) credit or insurance to be used primarily for personal,

family, or household purposes;– (B) employment purposes; or– (C) any other purpose authorized under section 604 [§ 1681b].

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Fair Credit Reporting Act (FCRA) Consumer reporting agency:

– The term “consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

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Fair Credit Reporting Act (FCRA) Permissible purpose: In general. Subject to subsection (c), any consumer reporting agency may

furnish a consumer report under the following circumstances and no other: (2) In accordance with the written instructions of the consumer to whom it

relates. (3) To a person which it has reason to believe (A) intends to use the information in connection with a credit transaction

involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of the consumer; or

(B) intends to use the information for employment purposes; or (C) intends to use the information in connection with the underwriting of insurance involving the consumer; or

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Permissible purpose:– Before an employer can get a consumer report

for employment purposes, they must notify the individual in writing - in a document consisting solely of this notice - that a report may be used. They must also get the person's written authorization before asking the provider for the report.

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Employments purposes:–The term “employment purposes” when

used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.

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Adverse action:–Step 1: Before you take the adverse

action, the employer must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act."

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Adverse action: Step 2: After you've taken an adverse action, the employer must give

the individual notice that the action has been taken in an adverse action notice. It must include:– The name, address and phone number of the CRA that supplied

the report;– A statement that the CRA who supplied the report did not make the

decision to take the adverse action and cannot give specific reasons for it; and

– A notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency directly upon request within 60 days.

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Don’t mess with the feds!


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Business Income and Extra Expense

Coverage Options–Monthly limit: 1/3, 1/4, 1/6

Limits to 3, 4, or 6 months–Maximum period of indemnity

No time limit on recovery–Agreed value

Does not waive coinsurance

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Coverage Options–Business Income WITH Extra Expense–Business Income WITHOUT Extra

Expense–Extra Expense Only

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Coverage Options–Business Income WITH Extra Expense–Business Income WITHOUT Extra

Expense–Extra Expense Only

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Methods to Provide Coverage:–Coinsurance method

Business Income Worksheet neededLong, tedious formEven accountants don’t understand it!

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Methods to Provide Coverage:–Waiving coinsurance:

Maximum Period of Indemnity–Pays for a specific period of time–Ends when coverage runs out or $$

runs out…whichever comes FIRST

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Monthly Limit of Indemnity–1/3, 1/4, or 1/6 of the limit per month–Limited to the maximum amount per

MONTH–Pays until the $$ runs out

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Agreed Value–Worksheet needed–Insured and company agree on

values–Good for 1 year from the agreement

date

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BBQ Joints

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And The BBQ Winner Is…

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As We Conclude…

E-mail me with questions

[email protected]

David Thompson, CPCU, AAI aka “Dream Team 2” Jay Williams, CIC, AAI aka “Dream Team 1”

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Transcript of David Thompson, CPCU, AAI aka “Dream Team 2” Jay Williams, CIC, AAI aka “Dream Team 1”