On the Funky Side
Funky, that is unusual, risks usually require specialty excess and surplus, nonadmitted insurance coverage.
These narrow, often emerging niche markets also depend upon brokers with a thorough understanding of their client’s industry, the insurance markets, the complexities of the risks they face and the ability to adjust and develop new coverage as the risks mature and grow.
Many, if not most, of the brokers that specialize in this kind of coverage are wholesalers and program administrators.
Susan Preston, president of Professional Program Insurance Brokers in Novato, Calif., sometimes called the queen of the funky insurance business, got her start when her first boss told her, “You need to think of something different to do” and he didn’t mean another line of work. “Anyone can insure the usual like an apartment building, or a retail store or a Main Street business,” he told her. “But not anybody can insure the unusual.”
Preston took that advice to heart and began by investigating the market and discovering that the massage business could be broken into two segments: “There is one massage business that commonly gets sued and then there is the other kind that never ends up in court.”
Preston jump-started her new firm by developing her own expertise in the massage business.
Realizing the value of unusual risks, she expanded to cosmetic tattooing — an attractive medically based business that’s less risky than the litigation-prone segment of the massage and tattoo business.
Cosmetic tattooing then led to insuring body piercing and she later expanded into the more traditional tattoo market.
Each business, typical of an unusual risk, has segments that are uninsurable usually because of increased frequency and severity of losses. For example, Preston said, certain body parts — for both piercing and tattooing — are not easily insured.
Today Preston’s Professional Program Insurance Brokers operates 34 programs. Most of them are unusual, and require excellent underwriting, carefully worded policy language and endorsements, aggressive risk management and strong safety and loss control programs focused on employee training.
Almost all of these markets for Preston are placed through London using more than a dozen Lloyd’s syndicates.
“We are constantly looking for new opportunities,” Preston said.
Her focus is on general liability, professional liability and product liability, but she also offers other complementary coverage for the businesses where needed, such as property.
Underwriting: Broker Expertise
It’s not coincidental that when former President Bill Clinton spoke at last fall’s meeting of the Target Markets Program Administrators Association, he began his remarks by noting that the TMPAA website boasted an impressive array of hard to place risks from “crane riggers to roofers to tattoo shops.”
The former president specifically cited the tattoo program wondering aloud “how you price coverage for a tattoo shop.”
And that’s among the key issues that program administrators — brokers that specialize in narrowly defined niche risks — need to consider. Unlike the more traditional independent brokers, program administrators must have extensive underwriting skills because they typically “hold the pen” or the ability to bind a carrier to coverage.
It’s also a program administrators’ knowledge of a relatively small industry that enables them to underwrite the risk and also market it to the entrepreneurs and small businesses that often make up the client base. For many carriers, these smaller industries can be overlooked markets.
Wholesalers and program administrators that are skilled in underwriting for these risks can bring a profitable book of business to the carrier.
Although wholesalers and program administrators generally don’t hold risk, they can effectively become the outsourcing arm for underwriting, policy development and administration, risk management and claims for their insurance carrier partners.
Take the fireworks market, or as Jeremy Bryant calls it, the pyrotechnics market. Bryant is executive vice president of Britton Gallagher, a program administrator based in Cleveland.
He worked with his team of specialists to arrange the coverage of the New Year’s Eve extravaganza in Dubai this year, obtaining coverage for the 163-floor Burj Khalifa, currently the world’s tallest skyscraper.
During the show, fireworks were periodically ignited, floor by floor, throughout the celebration.
To date, the half-hour show is the largest fireworks display ever presented.
This 2014 New Year’s fireworks display in Dubai was of such magnitude that it earned Guinness World Record status.
Bryant’s firm also brokered the pyrotechnics displays based at two of the chains of islands just offshore.
His clients generally are the firms that design, produce, promote and operate these huge displays. Typically, most of these displays are presented by municipalities ranging from small towns to the largest cities. Almost always, the displays are regulated by local government.
The risk today isn’t that a worker will get hurt igniting the display because almost all of the events are high tech and controlled by computers. In the Dubai fireworks at the Burj Khalifa, the fireworks were ignited using a sophisticated program.
“You have to watch out for all the safety issues, especially from the spectator standpoint,” he said.
Coverage included marine and hull insurance for barges where many of the displays were based. (There was one claim for a damaged barge where a portion of the fireworks were ignited.)
Bryant’s group placed all nonadmitted surplus lines coverage and “worked with a local Dubai broker to help them arrange admitted coverage from some local Dubai carriers.”
Pyrotechnic risks can be significant and potentially severe, Bryant said.
“But the business is really safe and getting safer. Remember, you’re dealing with gun powder at these displays. It’s very technical. The operators must look at all kinds of factors from wind speeds to related weather issues. We work with people we trust — trust is key to success in this market.”
Bryant estimated that he and his team (Eric Treend, Tami Bridgeman, and Hal Rindels) write as much as two-thirds of the professional pyrotechnics market in the United States — with the coverage focused on the two big fireworks events of the year — July 4th and New Year’s Eve.
“We work with people we trust — trust is key to success in this market.” — Jeremy Bryant executive vice president, Britton Gallagher
With their carrier partners they can insure all lines of coverage including property, general and professional liability, inland marine and commercial auto.
Cannabis Heats Up
No discussion of the funky risk management business could be complete without citing the fast-growing cannabis business — a risk that is more complex than might be expected.
The business began with the medical marijuana business but now has quickly expanded to Colorado and Washington State, which now allow recreational use and retail sales.
Michael Aberle, senior vice president of Next Wave Insurance and MMD Insurance in San Diego, said the range of risks in the business is varied.
Because many of the businesses are entrepreneurial in nature, trust between the client and broker is essential.
“We work with two cannabis trade associations to develop and market policies and we are active in those associations. That helps us market and build the trust needed to succeed.”
There are the storefront, retail outlets for both recreational and medial dispensing of cannabis (and something called dispensing insurance). But Next Wave Insurance Services’ market also includes the cannabis growers (including a version of crop insurance), the distributors and the manufacturers, security firms and a group of emerging business.
For example, there are firms that specialize in the design and manufacturing of marijuana paraphernalia and there is a newly forming chain of bed and breakfasts that offer cannabis to their guests.
To many of the businesses, property insurance is especially important. If there is a fire, the potential loss in terms of the value of the inventory can be significant.
Also, it’s mostly a cash business so protection against theft is very important.
One common risk that is usually uninsurable is protection against prosecution by a government entity for an illegal act — an issue at the heart of many cannabis-related businesses and usually excluded from standard general liability policies.
New Wave has developed coverage for this risk. The coverage is for legal defense against government actions against the business. If the insured is found innocent or not guilty of a state or local law, the policy will reimburse up to $5,000 in legal costs.
“Our coverage, however, doesn’t include actions by the federal government,” Aberle said.
It’s this kind of ability to create new kinds of coverage that is at the heart of insuring many unusual businesses.
He offers a version of a BOP policy for the smaller retail operation and also offers product liability coverage to the developers of new products (such as “edibles”).
One emerging risk, he pointed out, is that as more and more states relax the local laws, “we are insuring a lot of tenants that will need liability coverage in anticipation of legalization.”
Like other unusual risks, the “industry is not your standard market. We’re in the surplus lines market with no admitted carriers. That market offers flexibility and the ability to expand quickly because the surplus lines carriers don’t need to get state by state approval of every new policy change.”
Are We Having Fun?
If Susan Preston is the queen of funky insurance, then Larry Cossio, president of Cossio Insurance Agency in Simpsonville, S.C., is probably the king.
Cossio has been in the business of insuring the amusement industry for more than 30 years. He’s insured almost every kind of amusement risk there is — from inflatables (those bounce houses for kids and family events) to mechanical bulls at bars, to paintball parks.
Recently he began coverage of “Mudders,” the incredibly challenging and often dangerous obstacle-course races in the mud that can attract thousands of entrants to a single event.
Insurance coverage is essential, he said, because the risks can be huge. Take inflatables. Stories about accidents appear regularly and dramatically in the news. Cossio noted that one outdoor inflatable was caught by the wind and went 40 feet aloft over four lanes of traffic.
Not only is there the chance of catastrophic injuries to young children — children have died from falls and been permanently disabled — but a floating moon bounce can cause severe auto accidents.
The dangers are only limited by your imagination. Worse, this risk can be both frequent and severe — a formula for failure of both the operator owner and potentially an insurer.
Much of the largest risk comes from lawsuits filed by the injured parties or their parents.
Risk management, and safety and loss prevention then are at the heart of any insurance program, he said. Outdoor inflatables, subject to the weather and thus the wind, require that the bounce house be secured at all four corners with stakes and be able to withstand high winds. Training and supervision, properly documented, remains the essential cornerstone of an effective risk management program.
As far as insurance coverage, the requirements are wide ranging, including general liability, professional liability, commercial auto and, for employees of amusement/inflatable businesses there is EPLI, workers’ comp, health and life insurance.
Some of the risks are unexpected. For example, since many of these businesses serve a market of children, abuse and molestation coverage is clearly needed.
As far as those mechanical bulls, beyond the obvious injuries that can occur (and the need for a proper, signed release form), most of them are in bars. And that’s where the risks from alcohol can make a bad situation worse. Talk about funky.
Court Upholds Reservation of Rights
Wellons Inc. created two thermal oxidation energy systems in 2002 for Langboard Industries in Quitman, Ga., that were designed to generate electricity to be sold to Georgia Power.
During the construction phase in 2004, a “tube bundle” collapsed, causing extensive property damage, but the system was ultimately placed in service by June 2005, at which time leaks were discovered in the “superheater” portion of the system, according to court documents.
To fix the leaks and seal weld the joints, Wellons hired Hunt Construction, which completed the work in March 2006. The superheater was put back into service even though leaks still occurred. Two weeks later, one of the superheater tubes “completely severed.” Wellons claimed Hunt’s faulty repair work was responsible.
Langboard requested a new superheater, at a cost of $850,000, to be designed and installed as the current system was “not conducive to long term operation.” Wellons agreed, but did not immediately notify Lexington Insurance Co., which had issued a commercial general liability policy, with a per occurrence limit of $1 million. Lexington also had issued an umbrella policy, with a per occurrence limit of liability of $10 million.
Two months later, Hunt filed suit against Wellons for monies owed for its work. Lexington was notified through its agent, referencing the CGL policy and not the umbrella policy. Lexington issued a reservation of rights letter, notifying the company it was “investigating this matter.”
Langboard eventually filed suit against Wellons in 2007. Lexington sent another, similar reservation of rights letter.
After a jury trial in 2010, Langboard was awarded $8.4 million for breach of the purchase and construction agreements. A month later, Lexington advised Wellons it had “no obligation” to defend or indemnify it.
Wellons filed suit seeking a court declaration that the verdict was a covered loss under its CGL or umbrella policy. Both it and Lexington sought summary judgments.
The U.S. District Court for the Northern District of Georgia ruled in Lexington’s favor. On appeal to the U.S. 11th Circuit Court of Appeals, Wellons argued the reservation of rights notification needed to be more specific to comply with Georgia law.
The appeals court disagreed in May, saying that Lexington’s “defenses of noncoverage were not known … until it concluded its investigation… .” The court also found that Wellons had never notified the company of a claim under the umbrella policy.
Scorecard: Lexington Insurance did not have to cover an $8 million jury verdict resulting from faulty construction of an energy system.
Takeaway: Insurers “must” give insureds notification of a reservation of rights, but Georgia law only recommends that specific policy terms be part of that notification.
Imitation is Not Disparagement
In 2010, Gary-Michael Dahl, manufacturer of the Multi-Cart, filed a lawsuit against Ultimate Support Systems claiming that Ultimate’s Ulti-Cart infringed on Dahl’s patent and trademark, and damaged its business and reputation, among other issues.
Both the Multi-Cart and Ulti-Cart are collapsible carts designed for the musical industry to transport music, sound and video equipment.
Ultimate sought defense under its commercial liability policy issued by Hartford Casualty Insurance Co., which denied coverage, claiming that “disparagement” was not covered by the personal and advertising injury policy terms.
The insurance company also said the policy did not cover violations of intellectual property rights.
After Ultimate sued for coverage, the California Superior Court dismissed the lawsuit. That decision was affirmed by the Court of Appeal, and on further appeal to the California Supreme Court, Ultimate lost once again.
The state’s high court ruled in June there was no disparagement, either explicit or inferred.
The possible confusion between the two products does not imply inferiority of the Multi-Cart, the court ruled. In addition, Dahl’s claim that Ulti-Cart was a “knock-off” of the Multi-Cart, and thus derogatory of the Multi-Cart, was disputed by Dahl’s own claim that the two products were “nearly identical.”
Scorecard: Hartford did not have to provide a defense to Ultimate Support Systems in a trademark infringement lawsuit.
Takeaway: The ruling limits the scope of an insurer’s duty to defend a policyholder when the allegations involve disparagement.
Court Rules on Additional Insureds
On Sept. 13, 2010, workers of Fast Trek Steel were tightening safety cables on steel beams at Yale University’s Science Area Chilled Water Plant Shell when the unsecured beams dislodged and collapsed. One ironworker, Robert Adrian, fell to his death. Three others were injured by the falling beams.
Adrian’s estate and the injured men filed suit alleging negligence against, among others, Shawmut Woodworking & Supply Inc., general contractor of the construction project, and Shepard Steel Co., a steel fabrication subcontractor.
Because of workers’ compensation laws, there were no lawsuits filed against Fast Trek, which, as required by its contract with Shepard, had obtained a general liability policy from First Mercury Insurance Co. with a $1 million per occurrence coverage limitation, and an excess liability policy from National Union Fire Insurance Co., with up to $10 million of coverage.
Both Shepard and Shawmut sought defense and indemnification from First Mercury as “additional insureds” of that Fast Trek policy. Liberty Mutual — which had issued a liability policy to Shepard and is currently providing a defense to Shepard and Shawmut under a reservation of rights — also demanded that First Mercury assume that defense.
First Mercury demurred, contending, among other reasons, that Shawmut was not included in the definition of additional insured, and that even if Shawmut and Shepard were included, there was no coverage because Fast Trek was not named in the underlying lawsuits.
The U.S. District Court for the District of Connecticut disagreed.
It ruled that when Shepard hired Fast Trek as its subcontractor — and as Shawmut’s sub-subcontractor — the agreement expressly incorporated the Shawmut-Shepard contract, and that it was “immaterial” that there was not a “direct contractual relationship” between Shawmut and Fast Trek.
In addition, it ruled that the accident was arguably caused by Fast Trek and that the reason Fast Trek was not named in the underlying lawsuits was due to the exclusive remedy rule of workers’ compensation law.
Scorecard: First Mercury must defend and indemnify the general contractor and subcontractor in the workplace death and injury lawsuit.
Takeaway: A sub-subcontractor need not be explicitly included in a contract for coverage to be extended.
Changing the WC Medical Care Mindset
Controlling overall workers’ compensation medical costs has been an elusive target.
Yet, according to medical experts from Healthesystems, the Tampa, Fla.-based specialty provider of innovative medical cost management solutions for the workers’ compensation industry, payers today have more powerful options for both offering the highest quality medical care and controlling costs, but they must be more thoroughly and strategically executed.
Specifically as it relates to optimizing patient outcomes and controlling pharmacy costs, the key, say those experts, is to look beyond the typical clinical pharmacy history review and to incorporate a more holistic picture of the entire medical treatment plan. This means when performing clinical reviews, taking into account more comprehensive information such as lab results, physician notes and other critical medical history data which often identifies significant treatment plan concerns but frequently aren’t effectively monitored in total.
Healthesystems’ Dr. Robert Goldberg, chief medical officer, and Dr. Silvia Sacalis, vice president of clinical services, recently weighed in on how using a more holistic, comprehensive strategy can make the critical difference in the ongoing medical care cost control battle.
Fragmentation, Complexity Obscure the Patient Picture
According to Dr. Goldberg, fragmentation remains one of the biggest obstacles to controlling overall healthcare costs and ensuring the most successful treatment in workers’ compensation.
Robert Goldberg, MD, discusses obstacles to controlling overall medical costs and ensuring the best treatment in workers’ compensation.
“There are several hurdles, but they all relate to the fact that healthcare in workers’ comp is just not very well coordinated,” he said. “For the most part, there is poor communication between all parties involved, but especially between the payer and the provider. Unfortunately, it’s rare that all the stakeholders have a clear, complete picture of what’s happening with the patient.”
Dr. Goldberg explains that health care generally has become a more complex landscape, and workers’ comp adds another level of complexity. Physicians have less time to spend with patients due to work loads and other economic factors, and frequently there isn’t adequate time to develop a patient specific treatment strategy.
“Often we don’t have physicians properly incentivized to do a complete job with patients” he said, adding that extra paperwork and similar hurdles limit communication among payers, nurse case managers and other players.
In fact, Dr. Sacalis emphasized that it’s not only the payer, but often the healthcare provider who is not getting a complete picture. For example, a treating doctor may not be the primary care physician and therefore they may not have access to the total healthcare picture for the injured worker.
“Most of all, payers need to adopt a more collaborative approach in their relationships with physicians, employers and patients, as well as networks involved. It will result in getting people back to work through appropriate medical care and moving the case along to a prompt closure.”
– Robert Goldberg, MD, FACOEM, Chief Medical Officer, Healthesystems
“It’s often difficult for multiple physicians to communicate and collaborate about what’s happening because they may not be aware of each-others involvement in that patient’s care,” she said. “Data sharing is lacking, even in integrated healthcare systems where doctors are in the same group.”
Done Right, Technology Can Bridge the Treatment Strategy Gap
Dr. Sacalis explained the role technology advancements can play in creating a more holistic picture of not only an injured workers’ post-accident state or pace of recovery, but also their overall health history. However, the workers’ comp industry by and large is not there yet.
“Today’s technology can be very useful in providing transparency, but to date the data is still very fragmented,” she said. “With technology advancements, we can get a more holistic patient view. However, it is important that the data is both meaningful and actionable to promote effective clinical decision support.”
Silvia Sacalis, PharmD, explains the role that technology advancements can play in creating a more holistic picture of an injured worker’s overall health.
Healthesystems, for example, offers an advanced clinical solution that incorporates a comprehensive analysis of all relevant data sources including pharmacy, medical and lab data as part of a drug therapy analysis. So, for example, the process could uncover co-morbidities – such as diabetes – that may be unrelated to a workplace injury but should be considered in the overall treatment strategy.
“Healthcare professionals must ensure there are no interactions with any
co-morbidities that may limit or affect the treatment plan,” Dr. Sacalis said.
In the majority of cases where Healthesystems has performed advanced clinical analysis, information gathered from the various sources has uncovered critical information that significantly impacted the overall treatment recommendations. Technology and analytics enable the implementation of best practices.
She cites another example of how a physician may order a urine drug screen (UDS), yet the results indicating the presence of a non prescribed drug were not reflected in the treatment regimen as evidenced by the lack of modification in therapy.
“Visibility and transparency will help with facilitating a truly effective treatment plan,” she said, “Predictive analytics are necessary tools for proactive monitoring and detection of trends as well as early identification of cases for intervention.”
Speaking of Best Practices …
Dr. Goldberg highlighted that the most important overall best practice needed to secure the optimal outcome is centered around getting the right care to the right patient at the right time. To him, that means identifying patients who need adjustments in care and then determining medical necessity during the entire case trajectory.
“It means using evidence-based medical treatment guidelines that are coordinated,” he said.
“You must look at the whole patient, which means avoiding the typical barriers in the workers’ comp treatment system, issues such as delays in authorizations, lengthy UR processes or similar scenarios that are well intentioned but if not performed effectively they can get in the way of expedited care.”
Dr. Goldberg and Silvia Sacalis provide recommendations for critical steps payers should take to achieve the best outcomes for everyone.
Dr. Goldberg noted that seeking out the most effective doctors available in geographic locations is another critical best practice. That requires collecting data on physician performance, patient satisfaction and medical outcomes, so payers and networks can identify and incentivize them accordingly.
“This way, you are getting an alignment of incentives with all parties,” Dr. Goldberg said, adding that it also means removing outlier physicians, those whose tendencies are to over-treat, dispense drugs from their office or order unnecessary durable medical equipment, for example.
“Visibility and transparency will help with facilitating a truly effective treatment plan. Predictive analytics are necessary tools for proactive monitoring and detection of trends as well as early identification of cases for intervention.”
– Silvia Sacalis, PharmD, Vice President of Clinical Services, Healthesystems
“Most of all, payers need to adopt a more collaborative approach in their relationships with physicians, employers and patients, as well as networks involved,” he said. “It will result in getting people back to work through appropriate medical care and moving the case along to a prompt closure.”
Dr. Sacalis added that from a pharmacy perspective, another best practice is becoming more patient-centric, using a customized and flexible approach to help payers optimize outcomes for each patient.
“Focus on patient safety first, and that will naturally drive cost containment,” she said. “Focusing on cost alone can actually drive results in the wrong direction.”
Dr. Goldberg explains how consolidation in the health care and WC markets can impact the landscape and quality of care.
Dr. Goldberg and Silvia Sacalis discuss if injured workers today are getting better treatment than they were twenty years ago.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthesystems. The editorial staff of Risk & Insurance had no role in its preparation.