Question from an IIABNY member: I am hoping that you can help me with a basic opinion on a complicated HO Liability claim situation. I will try to keep the details simple as follows:
1. Insured has a Homeowners policy on Long Island that has Comprehensive Personal Liability attached.
2. The insured has a separate Homeowners policy with the same carrier on an upstate home.
3. Two years ago, a neighbor to the upstate home was killed while riding an ATV, not on our insured's premises, but on a neighbors premises--a road that has rights of way to each neighbor's parcel.
4. The accident involved the ATV hitting a chain and/or post that was across the road to the other neighbor's property.
5. Our insured is now being sued, along with every other neighbor in the area. The suit alleges that our insured was responsible for maintenance of the road (which he was not at the time of the accident,) and should have known that this post and chain created a dangerous condition.
There are two CPL policies involved. The accident did not happen on the insured premises. The carrier is saying that only one policy will cover this loss. I am thinking that both CPL polices should be involved.
Answer: Interesting question. I’m starting with the definition of “insured location” in the ISO Homeowners 3 policy, which states:
"Insured location" means:
a. The "residence premises"; (NOTE: The one-family dwelling where the named insured resides; the one, two, three or four family dwelling where the named insured resides in at least one of the units; or the part of any other building where the named insured resides, but only if the premises is shown as the “residence premises” in the policy Declarations. It also includes grounds at that location.)
b. The part of other premises, other structures and grounds used by you as a residence; and
(1) Which is shown in the Declarations; or
(2) Which is acquired by you during the policy period for your use as a residence;
c. Any premises used by you in connection with a premises in a. and b. above;
d. Any part of a premises:
(1) Not owned by an "insured"; and
(2) Where an "insured" is temporarily residing;
e. Vacant land, other than farm land, owned by or rented to an "insured";
f. Land owned by or rented to an "insured" on which a one, two, three or four family dwelling is being built as a residence for an "insured";
g. Individual or family cemetery plots or burial vaults of an "insured"; or
h. Any part of a premises occasionally rented to an "insured" for other than "business" use.
Both a. and b. require the premises to be shown in the policy Declarations unless the named insured acquired them during the policy period. The adjacent roadway sounds as if it fits into c. None of d., e., f., g., or h. seem to apply. Therefore, a home is an “insured location” under both policies only if the Declarations for both policies lists it.
Exclusion 4 in Section II—Liability Coverages states that Personal Liability Coverage and Medical Payments To Others Coverage do not apply to:
"Bodily injury" or "property damage" arising out of a premises:
a. Owned by an "insured";
b. Rented to an "insured"; or
c. Rented to others by an "insured";
that is not an "insured location"
Because of this exclusion, the policy covering the Long Island home will not provide Personal Liability Coverage for an injury arising out of the upstate home unless that home is an insured location under the policy (i.e., is scheduled in the Declarations.) Assuming that the policy covering the Long Island home does not list the upstate home on its Declarations, I agree with the carrier.
Question from an IIABNY member: If I am trustee for trust on a home in which my parents have lifetime tenancy, can I add the location onto my personal Homeowners policy and umbrella? In essence, if a claim was filed for trip and fall at this location and the injured person sued my parents and the trust, would my personal HO coverage respond to the claim? Would my policy not respond, since the entity being sued is the trust, not me?
Answer: A Homeowners policy, under Coverage E – Personal Liability, covers damages for which an insured is legally liable because of bodily injury or property damage caused by an occurrence to which the coverage applies. Exclusion 4 states that the coverage does not apply to bodily injury or property damage arising out of a premises owned by, rented to, or rented to others by an insured if that premises is not an “insured location.” The policy defines “insured location” as:
I don’t see how a residence of which you are a trustee but in which you do not live would meet any of these definitions. In my opinion, your Homeowners policy will not protect you against losses arising out of the residence. If the trust holds legal title to the residence, the safest course would probably be to buy a Dwelling policy in the name of the trust and have liability coverage endorsed onto it. Also, your parents should purchase an HO-4 to cover them for contents, additional living expense, and liability.
Question from an IIABNY member: My insured owns a home on a few acres of land. He has a pickup truck that he has not registered with the Department of Motor Vehicles. He uses it only to do chores on his property, such as plowing out his driveway. The truck does not go out on public roads. I think his Homeowners policy should cover the truck for liability, but the company underwriter is saying that it won't because the truck could be registered, even though it isn't now. He's saying the insured has to buy coverage for the truck under his auto policy. Who is right?
Answer: New York Vehicle and Traffic Law Sect. 401 states, "No motor vehicle shall be operated or driven upon the public highways of this state without first being registered..." Your insured is not driving the pickup truck on New York public highways, so the law does not require him to register it. In the ISO Homeowners 3 -- Special Form, Section II--Liability Coverages, Exclusion A. states:
1. Coverages E and F do not apply to any "motor vehicle liability" if, at the time and place of an "occurrence", the involved "motor vehicle":
a. Is registered for use on public roads or property;
b. Is not registered for use on public roads or property, but such registration is required by a law, or regulation issued by a government agency, for it to be used at the place of the "occurrence";...
If the insured injures someone with the pickup at a place (public highways) were the law requires it to be registered, the policy excludes coverage. However, if he injures someone in a place where the law does not require registration (vacant land he owns,) then this part of the exclusion does not apply.
The exclusion goes on to say:
2. If exclusion A.1. does not apply, there is still no coverage for "motor vehicle liability" unless the "motor vehicle" is:...
b. Used solely to service an "insured's" residence;...
Therefore, coverage applies if the insured uses the pickup solely to service the residence. If he were to use it for other purposes (hunting, for example,) the coverage question becomes murkier. It depends on how strictly the insurer defines the word "solely."
If your insured is using the truck only for errands on the premises, then I agree with you that the Homeowners policy should provide coverage and there is no need to add the vehicle to the Auto policy.
Question from an IIABNY member: Many GL forms no longer have the fellow employee exclusion, but if they did, what is the significance of removing it? For example, if an employee was hurt by a product and sued a third party manufacturer, who brought back in the employer and another employee, alleging an affirmative negligent act by the employee (i.e., purposely broke the machine, etc.), would this exclusion preclude coverage? But, in many cases in third party over claims, an insured (employee) does indirectly bring a suit against an employer (insured). Is this covered under common law liability, i.e., an insured suing another insured?
Answer: The CGL’s “Who Is An Insured” section states:
2. Each of the following is also an insured:
a. Your…"employees", other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees"…are insureds for:
(1) "Bodily injury" or "personal and advertising injury":
(a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-"employee" while in the course of his or her employment or performing duties related to the conduct of your business, or to your other "volunteer workers" while performing duties related to the conduct of your business;
Therefore, the policy does not cover an employee for his liability for an injury suffered by a co-employee who was in the course of his employment or performing duties related to the conduct of the named insured’s business. The example I think of, because I’ve seen it in dozens of bad comedies: A guy carrying a stack of lumber on his shoulder hears his name called, so he turns around quickly and knocks a co-worker out cold. Under the unendorsed CGL, if the co-worker sued the guy with the lumber for his injuries, the CGL would not defend and indemnify the guy. If the insurer modifies the policy to remove this exception to “who is an insured,” the lumber guy might have coverage. The insurer might try to apply the Employers Liability Exclusion (Exclusion e.). However, I suspect that a claim denial based on this exclusion would not succeed. It precludes coverage for:
"Bodily injury" to:
(1) An "employee" of the insured arising out of and in the course of:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured's business;
This implies that the exclusion would not apply to an employee who injures another employee, since the injured employee does not work for the other (it would apply to a sole proprietor who injures an employee.) Therefore, with the “Who Is An Insured” section modified and under this interpretation, our klutz with the lumber would have coverage when his colleague comes to.
Under your example, I don’t think the employee who broke the machine would have coverage. The policy provision says, “None of these ‘employees’ are insureds for…’bodily injury’… to a co-‘employee’ while in the course of his or her employment or performing duties related to the conduct of your business…” If the subject of the claim is an injury to another employee, the first employee does not have insured status, whether it’s a third party action claim or not.
I've gotten a bunch of phone calls in the last day or so from members wanting to know what New York law allows employees who do not have insurance producer licenses to do. Some members are under the impression that only one person in the office needs a license, others think that unlicensed employees can have no customer contact, and some insist that everyone in the building get a license. Clearly, there's a lot of confusion on this topic. Take a deep breath -- I'm about to bludgeon you with legalese.
New York Insurance Law Section 2101 defines the terms "insurance agent," "insurance broker," and "insurance producer." The definitions are quite lengthy; the one for "insurance producer" is 897 words long. Most of that wording describes what a producer is not, thus carving out definitions of people who do not need a license. Here are the parts of the "insurance agent" definition that are most relevant to agencies:
(a) In this article, " insurance agent " means any authorized or acknowledged agent of an insurer...and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance...contract, other than as a licensed insurance broker, except that such term shall not include:
(1) any regular salaried officer or employee of...a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such...agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done;...
Therefore, a regular salaried employee of an agent who does not receive commissions or other sales-based compensation and solicits or accepts orders for insurance inside the agent's office is not an insurance agent; the law does not require such a person to have a license. The definition of "insurance broker" is somewhat different:
(c) In this article, " insurance broker " means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker, except that such term shall not include:...
(2) an officer, director or employee of a licensed insurance producer, provided that the officer, director or employee does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and:
(A) the officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these, and are only indirectly related to the sale, solicitation or negotiation of insurance; or
(B) the officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance; or
(C) the officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting licensed insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance;...
Therefore, an officer, director or employee of an insurance producer who does not receive commissions and whose activities are indirectly related to insurance sales, or whose activities are in the underwriting, loss control, or claims areas, or whose activities involve giving technical assistance to producers is not an insurance broker. The law does not require this person to hold a license. The definition of "insurance producer" is similar to this one.
At the request of some members in the Binghamton area a few years ago, I asked the Insurance Department's Office of General Counsel for an advisory legal opinion on the permissible duties of unlicensed customer service representatives. In her opinion, the attorney wrote:
As a preliminary matter, agents and brokers may delegate certain activities to their officers or employees, provided that the insurer or other principal does not prohibit or restrict the delegation and the Insurance Law does not otherwise prohibit the activity. Subject to the above, in-office delegation is within the discretion of the licensee, who must exercise reasonable judgment based upon considerations such as:
1. the nature and complexity of the task being delegated
2. the education, training, experience and other personal qualifications of the officer or employee who will be performing the task and
3. the type and extent of supervision and internal controls that will be in place.
She went on to say that, even if the law permits an unlicensed employee of an agent to perform an activity, the insurer that the agent represents has the right to prohibit it:
Moreover, an insurer may restrict or prohibit the delegation of certain activities or duties to non-licensees, notwithstanding the statutory exemptions. Thus, an insurer may establish a list of non-delegable or unauthorized activities with respect to such insurer, even if the Insurance Law permits non-licensees to otherwise engage in such activities. A licensee that subsequently violates an insurer’s prohibition or restriction on delegation may be found by the Superintendent to be acting in an untrustworthy or incompetent manner.
Since the overwhelming majority of IIABNY members hold agent licenses, the focus should be on the definition of "insurance agent." An unlicensed employee can solicit or accept orders for insurance inside the agent's office only. That person cannot receive commissions or any other sales-based compensation, even small bonuses for selling additional coverage to existing clients. The insurers an agent represents can restrict the activities of unlicensed employees, so it's important to be aware of what the contract with the insurer says.
End of legalese. I hope to have a less complicated question for you tomorrow.
Question from an IIABNY member: I know that banks cannot require more insurance than the replacement value of a dwelling. My question is, if a loan is less than the replacement value, can the bank require that the home be insured for full replacement. I have an account that has flood insurance at $72k while the homeowner’s policy covers it for over $300k. The loan is for $50k and the bank is requiring that the flood insurance be increased to the $250k maximum available under FEMA. Can they insist on that?
Answer: The issue is the guidelines the federal government gives to lenders with regard to flood insurance. They encourage lenders to require RC coverage for flood. This document tells lenders that the flood limit must be, but is not limited to, the least of:
It goes on to state,
“A sound flood insurance risk management approach follows the insurance industry practice of insuring buildings to full RCV. Such a risk management strategy meets or exceeds the minimal compliance requirements and is the easiest approach for lenders to implement. Security interests in (special flood hazard areas) should be protected with flood insurance to the full insurable value, to the extent possible under the NFIP.”
Essentially, the lender is just doing what it’s being told, and nothing in New York law prohibits it from requiring the higher limit.
Question from an IIABNY member: I know that banks cannot require more insurance than the replacement value of a dwelling. My question is, if a loan is less than the replacement value, can the bank require that the home be insured for full replacement. I have an account that has flood insurance at $72k while the homeowner’s policy covers it for over $300k. The loan is for $50k and the bank is requiring that the flood insurance be increased to the $250k maximum available under FEMA. Can they insist on that?
Answer: The issue is the guidelines the federal government gives to lenders with regard to flood insurance. They encourage lenders to require RC coverage for flood. This document tells lenders that the flood limit must be, but is not limited to, the least of:
It goes on to state,
“A sound flood insurance risk management approach follows the insurance industry practice of insuring buildings to full RCV. Such a risk management strategy meets or exceeds the minimal compliance requirements and is the easiest approach for lenders to implement. Security interests in (special flood hazard areas) should be protected with flood insurance to the full insurable value, to the extent possible under the NFIP.”
Essentially, the lender is just doing what it’s being told, and nothing in New York law prohibits it from requiring the higher limit.
Question from an IIABNY member: We have a situation where one of our insurance companies is non-renewing a commercial middle market client due to bankruptcy / Chapter 11. One of our other carrier reps has informed us that this might be illegal; if the insured is in Chapter 11 bankruptcy and is working with the courts to have it remedied, the Bankruptcy Court can force the insurance company to renew the policy at the same/similar rate. If all the alternatives we were able to find were significantly more expensive (E&S or standard), our insured could claim that the insurance company is preventing them from reorganizing by forcing them to pay the more expensive premium with other carriers. If the insurance company had non-renewed because of the outstanding loss control or because of the significant losses, this may not be the case, but the non-renewal notices were for bankruptcy only. Do you have any information relating to this topic?
Answer: While the U.S. Bankruptcy Code is way outside my area of expertise, I found an article from the July 30, 2009 issue of the Insurance Journal, written by the president of NIP Specialty Brokerage, a wholesaler that has created a special Bankruptcy Facility to help risks in Chapter 11. He wrote in part:
Bankruptcy laws do not prevent an insurer from canceling or refusing to renew. Rather state laws or specific policy cancellation or non-renewal terms control whether the insurer may terminate coverage. Even in states with restrictive cancellation laws, a bankruptcy filing may be considered a material change in hazard, which many states recognize as a legitimate reason for mid-term policy termination with the proper advance notice.
I also found a 2007 New York Insurance Department advisory legal opinion stating that New York law does not prohibit an insurer from non-renewing a policy due to the insured’s bankruptcy.
Question from an IIABNY member: Does the rental vehicle coverage endorsement (PP 0346 0890) on an insured's personal auto policy extend when renting a moving truck such as a U-haul? Is there a size limit?
Answer: According to a 1994 Insurance Department advisory legal opinion, this coverage does not apply to a U-Haul. The attorney wrote:
In your letter, you specifically cite the Insurance Department Bulletin for April, 1991, in which an article appeared offering "Some Questions and Answers" about CDW coverage. One question concerned whether an individual, who has (Rental Vehicle Coverage) under his or her auto liability policy, would be covered for the rental of a U-Haul truck used to move belongings to a new apartment. You ask how a U-Haul truck is distinguished from a delivery sedan or panel truck. Simply stated, since the "standard" U-Haul moving truck is not a delivery sedan, panel truck or van, no RVC coverage would be available.
The department did not begin posting opinions to its Web site until 2000, so unfortunately this one is not online.
Question from an IIABNY member: Can you clear something up for our agency? If a customer is purchasing a home and needs a binder for closing, do we issue the binder with the closing date as the effective date? Or do we date it effective the date we send it? Would you ever back date it without a closing date?
Answer: I look at it this way. A binder is a temporary substitute for the policy (This is from a 1900 New York court decision: “The object of a binder is to provide temporary insurance pending an inquiry by the company as to the character of the risk, or if that be known, during any delay in issuing the policy.") It’s legally enforceable, like the policy, so if the insured submits a claim under the binder, the insurer is obligated to honor the claim. However, insurance is not enforceable unless the insured has an insurable interest in the property (N.Y. Insurance Law Sect. 3401 states this specifically.) Therefore, a binder that is effective before the closing date is unenforceable until the closing actually occurs. It makes more sense to make the binder effective on the closing date. If the attorneys or the lender postpone the closing, all the insured need do is comply with the cancellation condition in the HO policy (“You may cancel this policy at any time by returning it to us or by letting us know in writing of the date cancellation is to take effect.”) A simple note stating that the insured wishes to cancel the binder flat because the closing date changed should be sufficient.
I expect that an insurer would not be happy about its agent issuing backdated binders. It’s hard to imagine needing to backdate one anyway. When we bought our houses, the lawyers stopped just short of specifying the font on the binders, let alone letting us close without one.