Brokers List Legislative Priorities
‘Tis the season for major insurance agent and broker organizations to formalize their legislative agendas for the coming year.
Holding the line on an Obama administration proposal that would reduce crop insurance premium subsidiaries by $16 billion over the next 10 years is a top priority for these organizations.
“Individual agents are the primary distribution force for the federal crop insurance program,” said John Prible, Washington, D.C.-based vice president of federal government affairs for the Independent Insurance Agents & Brokers of America (IIABA). “So we’re intimately involved in that program.”
Members of the National Association of Professional Insurance Agents (PIA) underscored at its annual federal legislative summit held in late March that it, too, vigorously opposed the Obama administration proposal for crop insurance cuts.
PIA also said it supports a modernized state-based insurance system and opposes any federal regulation or international standards that would destabilize or supplant state-based insurance regulations.
PIA is also closely monitoring activities of the Federal Insurance Office (FIO), including actions related to producer licensing and international agreements, to ensure that the FIO does not exceed its limited authority.
Jon Gentile, PIA’s director of federal affairs, also noted that his organization has endorsed the Access to Professional Health Insurance Advisors Act of 2015, which clarifies that producer compensation will not be considered as part of medical loss ratio (MLR) calculations under the Affordable Care Act.
PIA said independent agents play a critical role in the sale and servicing of health insurance.
Prible said the IIABA is going to the Hill to support the recently introduced Policyholder Protection Act.
“This bill is a tweak to Dodd-Frank that would allow state regulators to wall off and protect insurance company assets for insurance consumers and not have these assets used to bail out non-insurance related failures,” said Prible.
“For example, if a financial institution has both a bank and an insurance company, we want to make sure that if the bank fails it’s not going to bring down the insurance company.
“We’re also going to be talking about the Labor Department fiduciary standards issue, which we’re becoming very engaged in,” he said. “We frankly think the Securities and Exchange Commission should act first on instilling a fiduciary standard and that the Labor Department should take a back seat.”
Another big issue Prible’s organization is working on is the national flood insurance program. “The program expires on Sept. 30, 2017, but we’re going to be on the Hill reminding them that that’s not that far away,” he said.
Several insurance agent and brokers organization are lobbying to incentivize independent agents and brokers to sell flood insurance, which at present is largely a federal program.
“Right now,” said Joel Wood, senior vice president for government affairs at the Washington, D.C.-based Council of Insurance Agents and Brokers (CIAB), “there is very, very little private flood insurance because everything is written through the federal government.
“Rep. Dennis Ross (R-Fla.) has legislation in the House Financial Service Committee that would incentivize private carriers in the flood insurance program,” he said.
Threat to Employer Benefits
Wood noted that CIAB’s top legislative issue right now is on the benefits side — in opposing the so-called Cadillac tax, a provision of the ACA.
Starting in 2018, benefit plans that cost more than $10,200 for individuals and $27,500 for families will be taxed with a 40 per cent excise tax.
“It’s not indexed to medical inflation and so over time will affect most plans,” Wood said. “While it’s aimed at raising many billions of dollars, we believe that’s bogus as I’ve yet to hear of a single employer who is going to pay the tax. Instead they’ll reduce their benefits. Goodbye flexible spending accounts and medical savings accounts, for example.
“We believe the Cadillac tax may present the greatest long-term threat to employer-sponsored health care.”
On another ACA front, CIAB and others are fighting an Equal Employment Opportunity Commission lawsuit that claims Honeywell’s expansive wellness program is inherently discriminatory.
“This threatens the sanctity of all wellness plans because the argument is that you’re discriminating against smokers and obese people, so everything is sort of on hold with people moving ahead on wellness plans,” said Wood.
“There is a lot of uncertainty caused by the EEOC. So we are working with others on legislation that has been introduced in the House and the Senate that would put the teeth back into the wellness provision and essentially render moot the EEOC lawsuit against Honeywell,” he said.
Insurer Required to Defend, But Not Indemnify
On July 27, 2005, Alex Sehat, a footwear company employee based in a Kmart store in Hollywood, Fla., helped a Kmart employee get a baby stroller down from a high shelf.
The stroller fell and struck Judy Patrick, a customer, in the face. She later sued Kmart for negligence, on May 17, 2006, but her counsel ultimately discovered that Sehat was actually an employee of Footstar Inc., which operated footwear departments in Kmart stores.
Footstar contacted Liberty Mutual on June 6, 2007 about the incident, and on Jan. 24, 2008, Kmart formally requested defense and indemnification from the carrier. Two days later, Patrick amended her complaint to include Footstar as a defendant.
Liberty Mutual denied defense and indemnification.
After Kmart settled the litigation with Patrick later that year for $300,000 and $10,000 in Kmart gift cards, the retailer filed suit against Footstar and Liberty Mutual for defense and indemnification. A magistrate judge ruled Liberty Mutual and Footstar owed a duty to defend (as of Jan. 24, 2008, when notice was given) and apportioned Footstar’s fault at 15 percent.
The judge also ruled that the insurer did not act in bad faith by denying coverage and Kmart did not breach the notice provisions of the policy. Kmart appealed.
On Feb. 4, 2015, a three-judge panel on the U.S. 7th Circuit Court of Appeals affirmed the duty to defend, but reversed the indemnification ruling. The opinion cited the “master agreement” under which Footstar operated inside Kmart’s stores. That agreement noted that “any injury had to arise ‘pursuant to’ or ‘under’ the Master Agreement to trigger indemnification, and the Master Agreement explicitly prohibited Sehat’s out-of-department action that resulted in the injury.”
It noted, however, that Sehat’s actions were “potentially covered,” and therefore, the insurer had a duty to defend dating to Jan. 24, 2008, when Kmart made an official request for coverage.
Scorecard: The insurance company was required to provide a defense to the retailer, but did not have to contribute to the $310,000 settlement paid in the case.
Takeaway: Because the Footstar employee violated the scope of the company’s agreement with Kmart, the insurer did not have to indemnify the retailer.
Fraud Negates Coverage
On Dec. 21, 1998, Cigna Corp. revamped its retirement plan, converting its traditional defined-benefit plan to a cash-balance plan.
It assured plan participants that the conversion would not affect benefits accrued as of Dec. 31, 1997 and presented the change as “an enhanced benefit.” In 2001, plan participants filed a class-action lawsuit on behalf of about 27,000 employees, and courts have since ruled that such communications were “downright misleading.”
In a separate but related action in 2012, Cigna filed suit against two of its professional liability and fiduciary liability insurers, Executive Risk Indemnity and Nutmeg Insurance Co., seeking coverage. Each of the insurers had issued excess policies of $10 million.
The other primary and excess carriers settled separately.
The Court of Common Pleas of Philadelphia County dismissed the lawsuit, which was then appealed by Cigna to the Pennsylvania Superior Court.
The main issue before the higher court was whether the policy’s “deliberately fraudulent acts” exclusion precluded coverage, as the lower court had ruled in dismissing the case.
Cigna contended that the policy would cover its conduct as a “wrongful act,” defined in the policy to include “any actual or alleged … misstatement, misleading statement, act, omission … .” It argued the wrongful act provision negated the fraudulent acts exclusion.
On Feb. 3, 2015, the state Superior Court disagreed, ruling that the “plain meaning” of the policy in its entirety is contrary to that argument. In addition, the company’s conduct “would clearly qualify as fraudulent under Pennsylvania law,” which requires as a matter of public policy that insurance coverage not be provided for fraudulent acts.
Scorecard: The insurance companies are not required to indemnify the company up to the $20 million total excess coverage.
Takeaway: Fraudulent activity bars insurance coverage.
Insurer vs. Insurer
On Aug. 15, 2010, before an International Kart Federation race event at the Grand Junction Motor Speedway in Colorado, a 9-year-old go-karter was killed during a practice event when his go-kart collided with a maintenance/recovery vehicle.
The parents sued the Speedway, its employees, the International Kart Federation (which was the sanctioning body for the race event) and others in state court. Mt. Hawley Insurance Co. defended IKF as its insured, and Speedway and its employees as additional insureds.
On June 24, 2013, Mt. Hawley filed suit against National Casualty Co., which provided commercial general liability coverage to members of the National Karting Alliance (NKA). Speedway was a member of the NKA.
The policy covered bodily injury, property damage and personal and advertising injury liability “caused, in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf … .”
National Casualty denied coverage, saying the Speedway and its employees did not qualify as additional insureds under the NKA policy. In court, it sought a summary judgment.
The U.S. District Court for the District of Colorado ruled that a summary judgment was warranted, basing its decision on the key term of “acting on your behalf” found in the policy. It cited case law that determined that coverage was not available when a member’s acts are “for his own private actions done for his own pleasure” or “completely personal and voluntary” actions.
“Although Speedway had liability insurance through NKA’s policy, Speedway acted voluntarily and for its own benefit on the day of the accident and not at the direction, request, or benefit of NKA,” the court ruled on Jan. 30, 2015.
Scorecard: National Casualty Co. did not have to contribute a pro rata share of Mt. Hawley’s defense costs incurred on behalf of Speedway.
Takeaway: Merely being a member of an organization will not trigger the organization’s insurance coverage.
Healthcare: The Hardest Job in Risk Management
Radically changing cost and reimbursement models.
Rapidly evolving service delivery approaches.
It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.
After all, this is more than just a business.
The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.
“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.
But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.
“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.
Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.
The Foundation: Financial Strength
Berkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.
For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.
But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.
For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.
“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.
Keeping Things Simple
Healthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.
Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.
“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.
Claims: More Than an After Thought
Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.
In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.
And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.
“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”
Responding To Ebola: Creativity + Flexibility
The recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.
Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.
BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.
These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.
At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.
Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.
“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.
It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.
To learn more about BHSI Healthcare, please visit www.bhspecialty.com.
Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact email@example.com.
The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.