Answer: The PIP endorsement to the Business Auto Policy states that the insurer “will pay first-party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of a motor vehicle …” It certainly sounds like his injuries were caused by an accident arising out of the use of a motor vehicle. Also, the definition of “eligible injured person” includes:

Any (person other than the named insured or a relative) who sustains personal injury arising out of the use or operation of the insured motor vehicle in the State of New York while not occupying another motor vehicle …

Therefore, the employee falls within the definition of eligible injured person. None of the exclusions in the endorsement appear to apply, so I believe he is eligible for PIP benefits. 

I’m not sure whether he is also eligible for PIP under his personal policy. While the definition of eligible injured person includes, “The named insured and any relative who sustains personal injury arising out of the use or operation of any motor vehicle,” the Exclusions state:

This coverage does not apply to personal injury sustained by:

(c) The named insured or relative while occupying, or while a pedestrian through being struck by, a motor vehicle in New York State, other than the insured motor vehicle, with respect to which the coverage required by the (New York no-fault law) is in effect …

The question becomes whether he was considered to be “occupying” the truck or whether he was a pedestrian who was struck by it. If the answer is yes, then his personal PIP coverage won’t apply. If no, then both policies will share the loss on a pro-rata basis, based on the total limits available.

Finally, the amount of the PIP recovery is reduced by the amounts he recovers under Workers’ Comp.

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Exhibit A: A New York appellate court last fall upheld a carrier's denial of coverage based on the insured's failure to comply with policy conditions. The carrier's endorsement listed a number of conditions relating to the use of subcontractors, including:

• The insured had to obtain certificates of insurance showing liability limits equal to or greater than the insured's from all subs prior to the commencement of work
• The insured had to verify prior to the commencement of work that the sub's policies had not been cancelled
• The insured had to obtain hold harmless agreements from all subs
• The insured had to verify that all subs' CGL policies named the insured as an additional insured
• The insured had to give notice of claim to all potential insurers as soon as practicable

Faiulre to comply with these conditions entitled the carrier to void the policy with regard to a particular claim. 

A construction worker fell off a ladder and was injured. He sued the general contractor, who in turn submitted a claim to its CGL carrier. The carrier denied coverage on the grounds that the GC failed to comply with the conditions in the endorsement. The GC sued and won in trial court, but the appellate court reversed the verdict. "(T)he conditions to coverage outlined in endorsement 102A are clear and unambiguous," the court said. "Each of the requirements in endorsement 102A is an express condition precedent to coverage, and the failure to comply with any one of them is a sufficient basis to disclaim coverage."

These endorsements are out there, being sold to contractors who are desperate for liability insurance and who can't get standard coverage. The people who work for carriers are not stupid. They can understand the implications of the seven-figure liability settlements resulting from violations of New York's scaffolding law as well as anyone, and they are acting accordingly. One way not to pay seven-figure settlements is to attach endorsements like this one. In this case, the carrier got the result it wanted. 

The court's decision doesn't identify the GC's insurance broker, but I think it's highly probable that the broker is now having regular contact with the GC's lawyer. Hopefully, the broker has good documentation to help defend against the inevitable lawsuit. Regardless, who needs this? Be very afraid of these endorsements, folks.

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No, this is not a mirage -- it's a brand spankin' new episode of the Ask Tim podcast! It's been far too long. I hope you'll find this one worth the wait.

Last time, I discussed the criteria for determining whether a construction worker is an independent contractor. This time, we leave the construction site for the office, or the retail store, or any other non-construction work site. How can you tell whether someone is an independent contractor? As I explain in the video, I have some personal experience with this.

The New York State Workers' Compensation Board has a detailed list of criteria on its Web site, so be sure to bookmark it for future reference.

I hope it won't take as long to get you the next episode.

Download Ask Tim Episode #35

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Question from an IIABNY member: Why is it in New York State for commercial lines Additional Personal Injury Protection (a/k/a, APIP or "additional no-fault) is offered to customers up to a maximum of $150,000 and for personal lines the max is $100,000 APIP. Is it just because one is commercial and one is personal.? Are there different amounts approved by New York State?

Answer: This is an interesting question. I checked the New York rating pages for both personal and commercial auto, and sure enough the personal auto page shows APIP limits up to $100,000 and the commercial auto page shows APIP limits up to $150,000. However, nothing in New York insurance law or regulations puts a limit on the amount of APIP benefits an insurer may offer, either for personal or commercial. 

New York Insurance Law Section 5102(a) defines “basic economic loss,” which is the formal name for no-fault benefits. It states, “ ‘Basic economic loss’ means, up to fifty thousand dollars per person of the following combined items …” However, Section 5102 does not contain a definition of “extended economic loss,” which is what the APIP endorsements provide. Section 5103 is the law that actually requires insurers to include no-fault coverage on all auto liability policies; the only reference it makes to higher limits is in subsection (c), which deals with deductibles:

(c) Insurance offered by any company to satisfy the requirements of subsection (a) hereof shall be offered (i) without a deductible and (ii) with a family deductible of up to two hundred dollars (which deductible shall apply only to the loss of the named insured and members of his household). The superintendent may approve a higher deductible in the case of insurance policies providing additional benefits or pursuant to a plan designed and implemented to coordinate first party benefits with other benefits.

New York Insurance Regulation 68-A (11 NYCRR 65-1.3) contains the rules for APIP coverage. Most of the regulation is the actual text of the APIP endorsement, and it includes a definition of “extended economic loss”:

Extended economic loss shall consist of the following:

(a) basic economic loss sustained on account of an accident occurring within the United States of America, its possessions or territories, or Canada, which is not recovered or recoverable under a policy issued in satisfaction of the requirements of article 6 or 8 of the New York Vehicle and Traffic law and article 51 of the New York Insurance Law;

(b) the difference between

(i) basic economic loss; and

(ii) basic economic loss recomputed in accordance with the time and dollar limits set out in the declarations; and

(c) an additional death benefit in the amount set out in the declarations

Note there is no stated maximum limit for extended economic loss here, either. Also, a New York State Department of Financial Services opinion dated May 15, 2008 states:

As set forth in 11 NYCRR § 65-1.3(b)(ii), APIP extends basic economic loss by permitting insurers to alter time and dollar limits in the policy declaration page beyond the limits of PIP basic economic loss. Although APIP must confer an additional benefit on the insured by altering the time and/or dollar limits available under PIP, the manner by which APIP confers this additional benefit is left to the discretion of the insurer. [EMPHASIS ADDED]

Here, the declaration page that the inquirer provided to the Insurance Department states that the inquirer's basic economic loss was increased to $200,000. …

Not only is the manner of providing APIP benefits up to the insurer’s discretion, but the attorney casually mentions that the policy in question provided a $200,000 APIP limit. I’ve read enough department opinions to know that, when an insurer offers something outside the parameters of New York law, the attorney writing the opinion always labels it as a violation. The attorney who wrote this opinion didn’t do that. Lastly, New York Insurance Regulation 41, which regulates excess line brokers, contains the so-called “export list,” the list of coverages for which an excess line broker is not required to obtain declinations from the voluntary market. Among the items on that list is, “Automobile Personal Injury Protection (PIP) Excess of $150,000.”

The only conclusion I can draw is that New York law and regulations do not limit the amount of APIP coverage an insurer may offer, but admitted insurers are unwilling to offer limits above $100,000 or $150,000. I’m sure you’re wondering where the options in the ISO rating manuals came from, and I really don’t have an answer to that. ISO works with industry panels; I served on a producer committee for three years that met with ISO annually, and I know that ISO has carrier panels as well. It’s possible that the carriers told ISO that the $100,000 and $150,000 limits were the most they typically offer. Maybe they offer more for commercial auto because commercial limits, in general, are typically higher than personal limits. That’s just a guess, however. 

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Just think: Whoever typed up this page probably thought at the time that it was just one more piece of work to get through that day ...

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I got a call yesterday from a member insurance agent located on Long Island. One of her clients had the foresight to buy flood insurance (good for him!) through a Write Your Own company. He suffered extensive flood damage during Superstorm Sandy. The insurance company investigated his claim and, to make a long story short, found out that the information on which it had based the premium calculation was incorrect. The homeowner's actual vulnerability to a flood loss was much greater than the company had been led to believe.

The company said it would honor the claim. However, it would also retroactively re-calculate the flood policy premium to what it should have been from the beginning. The homeowner's flood insurance premium effectively tripled for both the policy under which he made the claim and the renewal. The client's reaction (and the agent's) were what any ordinary person's reaction would be (after ingesting medication to reduce blood pressure to non-life threatening levels): "Can they do that?"

Yep. They sure can.

The answer is in Section VII. GENERAL CONDITIONS in the National Flood Insurance Program's Dwelling Form. Condition G., Reduction and Reformation of Coverage, states:

1. If the premium we received from you was not enough to buy the kind and amount of coverage you requested, we will provide only the amount of coverage that can be purchased for the premium payment we received.

2. The policy can be reformed to increase the amount of coverage resulting from the reduction described in G.1. above to the amount you requested as follows: ...

b. Discovery of insufficient premium or incomplete rating information after a loss.

(1) If we discover after you have a flood loss that your premium payment was not enough to buy the requested amount of coverage, we will send you and any mortgagee or trustee known to us a bill for the required additional premium for the current and the prior policy terms. If you or the mortgagee or trustee pay the additional premium within 30 days from the date of our bill, we will reform the policy to increase the amount of coverage to the originally requested amount effective to the beginning of the prior policy term.

In short, the policy language gives the insurance company the right to retractively bill for the correct premium. Obviously, this was an unwelcome surprise for the homeowner, but the good news is that he had the coverage. Too many others affected by Sandy didn't.

The NFIP's Dwelling Form is available for download from the program's Web site.

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Question from an IIABNY member: My commercial lines client wants to know if one of his employees rents a car for business, either on a company or a personal credit card, is the business covered by its commercial auto or liability policy?

Answer: I’m assuming that your client has the equivalent of the ISO Business Auto Policy, CA 00 01 03 10. The answer depends on the symbols shown in the policy Declarations for Liability Coverage. If the Declarations show symbol 1 (Any “Auto”), then there is coverage. Otherwise (assuming the employee is renting the vehicle in her own name, even if using a corporate credit card), there is no coverage unless the Declarations show symbol 9 (Non-owned “Autos” Only). In either case, however, your client’s policy would provide primary liability coverage for a loss involving the rental car only if the rental contract requires the client or employee to assume liability for use of that car. Otherwise, the car rental company’s coverage will be primary and your client’s coverage will be excess.

The policy defines symbol 9 as:

Only those "autos" you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes "autos" owned by your "employees", partners (if you are a partnership), members (if you are a limited liability company) or members of their households but only while used in your business or your personal affairs.

Recall that, in this context, the word “you” means the named insured shown in the Declarations; i.e., the name of the business. If the named insured is Acme Corp., then a vehicle rented by an employee for business purposes is one that Acme Corp. does not own, lease, hire, rent or borrow. (If the rental contract was actually between the car rental company and Acme Corp., then symbol 8, Hired “Autos” Only, would be needed. However, I think it’s more common for employees to rent cars in their own names.)

In Section IV – Business Auto Conditions, condition B.5. states:

5. Other Insurance

a.  For any covered "auto" you own, this coverage form provides primary insurance. For any covered "auto" you don't own, the insurance provided by this coverage form is excess over any other collectible insurance.

However, while a covered "auto" which is a "trailer" is connected to another vehicle, the Liability Coverage this coverage form provides for the "trailer" is: 

 (1)  Excess while it is connected to a motor vehicle you do not own. 

 (2)  Primary while it is connected to a covered "auto" you own.

b.  For Hired Auto Physical Damage Coverage, any covered "auto" you lease, hire, rent or borrow is deemed to be a covered "auto" you own. However, any "auto" that is leased, hired, rented or borrowed with a driver is not a covered "auto".

c. Regardless of the provisions of Paragraph a. above, this coverage form's Liability Coverage is primary for any liability assumed under an "insured contract".

d.  When this coverage form and any other coverage form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our coverage form bears to the total of the limits of all the coverage forms and policies covering on the same basis. 

Definition H. in the policy includes the following:

H. "Insured contract" means: …

6.  That part of any contract or agreement entered into, as part of your business, pertaining to the rental or lease, by you or any of your "employees", of any "auto". However, such contract or agreement shall not be considered an "insured contract" to the extent that it obligates you or any of your "employees" to pay for "property damage" to any "auto" rented or leased by you or any of your "employees".

Therefore, a car rental agreement is an insured contract. If the employee or employer assumes liability under the rental agreement, then the employer’s coverage is primary, but only if the employer has either symbol 1, symbol 8 (contract between employer and car rental company), or symbol 9 (contract between employee and car rental company.)

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Question from an IIABNY member: Can you address if the Boston incident would be considered terrorism and only covered if a commercial client elected the coverage?

Answer: For purposes of the federal Terrorism Risk Insurance Program, an “act of terrorism” is one that causes more than $5 million in property and casualty insurance losses; is not an act that occurred in a declared war; and is certified by the U.S. Treasury Department as:

• An act of terrorism
• A violent act or an act dangerous to human life, property or infrastructure
• An act that caused damage within the U.S. or outside the U.S. (in the case of air carriers, vessels, embassies and other U.S. property), and
• An act committed by one or more individuals “as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.”

I haven’t seen any estimates yet on the dollar amount of P&C-insured losses. Certainly the property damage was extensive, and damaged businesses may be shut down for some time. However, some of the properties might have been franchises of national chains that self-insure (one of the bombs exploded in front of a Starbucks.) Therefore, I don’t think anyone knows yet whether the P&C losses will exceed $5,000,000. Virtually all of the injured were not working at their jobs at the time, so I’m guessing Workers’ Compensation losses will be relatively small.

We know this much: 

• The bombings did not occur in the course of a war declared by Congress
• The act was dangerous to human life, property and infrastructure
• It caused damage within the U.S.

What we don’t know right now is the alleged bombers’ motivation. One of the suspects is dead, and the other was communicating only in writing (he has since invoked his right to remain silent.) Therefore, not all of the elements that would enable the Treasury Department to certify this as a terrorist act are in place. In addition, if the total P&C insurance losses are $5 million or less, the department cannot certify it as a terrorist act (again, for purposes of TRIP).

If the department does certify this as a terrorist act, here are the coverage implications for Commercial Property insurance:

• If an insured’s policy includes ISO endorsement IL 09 53 01 08, Exclusion of Certified Acts of Terrorism, then the insurance will not cover the losses. This endorsement will be on the policy if the insured rejected the carrier’s offer of terrorism coverage.
• If an insured’s policy includes ISO endorsement IL 09 52 01 08, Cap on Losses from Certified Acts of Terrorism, the insurance will cover the losses. This will be on the policy only if the insured elected to buy the coverage. The carrier’s liability for terrorism losses in any one year is limited should they exceed $100 billion (for all insurers in the aggregate), but no one has yet suggested that the Boston events will approach that level. Hopefully, this is the last incident of this sort that we will see this year, so the cap should not be a concern.
• If an insured’s policy includes ISO endorsement IL 09 87 01 08, Limitation of Coverage for Certified Acts of Terrorism (Sub-Limit on Annual Aggregate Basis), then the insurance will cover the losses. The maximum the carrier will pay is the sub-limit shown on the endorsement.

Note that all three of these endorsements are approved in Massachusetts, but IL 09 87 01 08 is not approved in New York. Carriers may not write terrorism coverage with a sub-limit in New York.

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Question from an IIABNY member: If you are in an employer’s vehicle, you are the passenger, there is an accident, and the other driver and your employer carry only the minimum liability limits required by the state, are you able to collect on your personal auto policy Supplementary Uninsured/Underinsured Motorist (SUM) coverage for things not covered by your Workers' Compensation benefits? 

Answer: Interesting question. ISO endorsement PP 04 09 12 00, Supplementary Uninsured/Underinsured Motorists Endorsement – New York, states in relevant part:

Insured. The unqualified term "insured" means:

(1) You, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse;

(2) Any other person while occupying:

(i) A motor vehicle insured for SUM under this policy: or

(ii) Any other motor vehicle while being operated by you or your spouse; and

(3) Any person, with respect to damages such person is entitled to recover, because of bodily injury to which this coverage applies sustained by an insured under Paragraph (1) or (2) above.

In your scenario, the injured person was a passenger in the employer’s vehicle. Let’s assume that the injured person falls within the above definition of “insured” in the SUM endorsement. The endorsement goes on to define “uninsured motor vehicle” in part as:

The term "uninsured motor vehicle" means a motor vehicle that, through its ownership, maintenance or use, results in bodily injury to an insured, and for which: ...

(3) There is a bodily injury liability insurance coverage or bond applicable to such motor vehicle at the time of the accident, but:

(i) The amount of such insurance coverage or bond is less than the third-party bodily injury liability limit of this policy; or

(ii) The amount of such insurance coverage or bond has been reduced, by payments to other persons injured in the accident, to an amount less than the third-party bodily injury liability limit of this policy; or

(iii) The insurer writing such insurance coverage or bond denies coverage, or such insurer is or becomes insolvent.

In the incident you described, the other driver’s vehicle appears to fall within this definition. The Damages for Bodily Injury Caused by Uninsured Motor Vehicles provision states:

We will pay all sums that the insured or the insured's legal representative shall be legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured, caused by an accident arising out of such uninsured motor vehicle's ownership, maintenance or use, subject to the Exclusions, Conditions, Limits and other provisions of this SUM endorsement.

There are only three exclusions – settlement without the insurer’s consent, autos owned by the insured that do not carry SUM coverage, and non-economic loss. Therefore, it appears that a person injured in his employer’s vehicle is eligible for SUM benefits under his personal auto policy. Since both the employer’s UM/UIM coverage and the employee’s SUM coverage are involved, we have to refer to the Priority of Coverage provision determine who pays what:

If an insured is entitled to uninsured motorists coverage or supplementary uninsured/underinsured motorists coverage under more than one policy, the maximum amount such insured may recover shall not exceed the highest limit of such coverage for any one vehicle under any one policy, and the following order of priority shall apply:

(a) A policy covering a motor vehicle occupied by the injured person at the time of the accident;

(b) A policy covering a motor vehicle not involved in the accident under which the injured person is a named insured; and

(c) A policy covering a motor vehicle not involved in the accident under which the injured person is an insured other than a named insured.

Coverage available under a lower priority policy applies only to the extent that it exceeds the coverage of a higher priority policy.

Suppose there were three people in the employer’s car, each was injured, and a court awards them a total of $375,000 ($125,000 each.) The other driver carried minimum limits, the employer carried minimum UM/UIM limits and no SUM coverage, and  the employee had personal SUM coverage with limits of $250/$500. Here’s how the math works out: 

• Driver #2’s liability insurance pays $50,000 total for the three people injured in the employer’s car
• Employer’s UIM coverage pays $50,000 total for the three people (higher priority coverage)
• Employee’s SUM coverage pays $25,00 (lower priority coverage)

Bear in mind that the Non-Duplication provision states that SUM coverage will not duplicate Workers’ Comp benefits and no-fault benefits, so these numbers may have to be adjusted to reflect that. However, this is basically how it works.

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(Full disclosure: My oldest son is a law student at Boston University. He was a couple of blocks away from the explosions when they occurred, and he spent a good part of Friday waiting outside a closed bus terminal, hoping to catch a bus back to New York for the weekend. I'm happy to say that he made it home safely, but he got to watch his city become a war zone. Still, we're the lucky ones.)

During a conversation over the weekend, he and I got to discussing the insurance coverage considerations for Boston area businesses (insurance geekiness spreads to the next generation!) I explained how business income coverage applied to the businesses whose property was damaged by the explosions. Then he threw a curveball at me, an activity normally restricted to IIABNY members.

During the manhunt on Friday, the city government told people to stay in their homes and told businesses not to open. A full day's unscheduled closing in a large market like Boston adds up to some serious money. Would business income coverage apply to the income lost that day? The answer is no.

The ISO Business Income (and Extra Expense) Coverage Form states in part:

We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. [Emphasis added]

In the case of the businesses that were closed on Friday, most of them had not suffered physical damage. They were closed because there was an individual on the loose presumed to be armed and dangerous, and no one knew precisely where he was. I don't think anyone will dismiss the financial hardship this caused to area businesses, but without damage to their premises, there is no business income coverage.

It is true that the form provides an additional coverage titled Civil Authority. Under this, the insurance company pays for loss of business income when a covered cause of loss damages property other than the insured's and the civil authorities prohibit access to the insured's premises because of it. However, coverage applies only if both of the following are true:

Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

Again, the absence of physical damage to a nearby property means that coverage does not apply.

Lastly, even if coverage did apply, coverage begins 72 hours after the suspension of operations begins. Happily, most of Boston was back in business on Saturday, a bit more than 24 hours after the manhunt began. Those who weren't were at Fenway Park singing along with Neil Diamond. All of the closures would have been for less than the 72-hour deductible.

The bombers killed innocent adults and a child, wrecked too many other lives to count, caused millions in property damage, cost honest business owners in Boston a day's earnings, and terrified an entire major metropolitan area. Unfortunately, only some of these losses can be insured, and the forced closure last Friday is not among them.

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