Primary Agent - March 2013 - DE Edition

DELAWARE

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10 ways to prevent E&O

Tenants & flood insurance

When business income coverage falls short

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The ins and outs of Claims-Made Policies

Navigating the intricacies of Claims-Made Policies is no easy feat. One missedturn in recognizing and reporting a claim can lead to a dead end — and nocoverage. The following pages shed light on the complexities and explain howagents can lead their clients to a satisfactory finish.

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ContentsP R I M A R Y A G E N T M A G A Z I N E

Copyright 2013. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and is not intended to serve as legal, accounting, financial,insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult withcompetent legal, financial, insurance, investment advisory and or other professional advisors concerning specific matters before makingany decisions and we disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in PrimaryAgent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the IA&B.Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&Bendorsement of the products and/or services.

Subscriptions: Non-member price: $2.25 per copy or $15 per year.

All communications for publications, including news, features, advertising copy, cuts, etc., must reach the editor by 1st of month two monthsprior to publication. Advertising rates furnished upon request.

Address inquiries to:Primary Agent Editor5050 Ritter RoadMechanicsburg, PA 17055-0763Phone (800) 998-9644 or (717) 795-9100 Fax (717) 795-8347

Periodical postage paid at Mechanicsburg, Pa. and additional entry post office. Ride-along enclosed.

Postmaster: Send address changes to above address.Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2013-3 is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

2 Chair of the Board’s Message3 Member FAQ4 State News6 Preventing E&O8 Coverage Corner17 Glance at Events

21 IA&B Partners22 Technology UpdateIBC Advertisers IndexIBC Classified AdsIBC Last & Least

In every issueMission Statement

Primary Agent delivers ideas to help InsuranceAgents & Brokers’ members negotiate their uniqueposition as guardians of trust between insuranceconsumers and companies while facing thechallenges of maintaining a small business. PrimaryAgent also supports IA&B’s mission to preserve andadvocate the American Agency System.

Get social with IA&B

Driving members to distinction.

OfficersNorman F. Basso, CPCU

Chair of the BoardYork, Pa.

G. Greg Gunn, CICVice Chair of the BoardLemoyne, Pa.

Robert B. Hall, CPCU, CLU, ChFC, ARM, ARM-PImmediate Past Chair of the BoardWest Chester, Pa.

MembersJoyce M. Bailey, CIC, CRM, CPIW

Newark, Del.

Henry “Butch” Bradley, Jr.Forest Hill, Md.

Timothy P. BurrisMifflintown, Pa.

N. Lee Dotson, CIC, AAIWilmington, Del.

Michael P. ErtelColumbia, Md.

John L. FrankenfieldTelford, Pa.

John B. HollisterMilford, Pa.

Diana M. Hornung Hanby, ACSRWilmington, Del.

Jocelyn R. Howard-Sinopoli, CIC, CISRButler, Pa.

Robert S. Klinger, LUTCF, CPIA+

Germantown, Md.

Douglas A. Loesel, CPCUErie, Pa.

Michael F. McGroarty Sr.Pittsburgh, Pa.

Craig S. Mader Gambrills, Md.

Ann Gallen Moll, CICReading, Pa.

Joseph R. Pastor, CPCU, AAIOil City, Pa.

April E. Ressler, CICAltoona, Pa.

Scott C. Rogers, CPIA*York, Pa.

David B. Wasson Sr., CICState College, Pa.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM**New Castle, Del.

* Pa. IIABA National Director** Del. IIABA National Director+ Md. PIA National Director

Board of Directors

[ 2 ]

Norman F. Basso, CPCU

Chair of the Board’sM E S S A G E

Spring fever

At last, it’s March. With those first signs of spring, we all feel alittle more invigorated. Goodbye, hibernation. Hello, productivity!

Members are the reason we exist. Capitalizing on the season ofchange and energy, IA&B will launch a new Member Agent Panel(MAP) program in the coming weeks. MAP meetings bringtogether member agents and IA&B leadership and staff to discuss the independent agency experience — and how theassociation can help members succeed. The spring 2013 MAPmeetings are the first in a two-year cycle with a fresh format and new participants.

In addition, IA&B will unveil additional opportunities to engagemembers, such as gathering groups of demographically similarmembers to better understand their specific needs. The goal is foryour association to remain flexible and relevant. To embrace thechanges that members are facing.

So this spring (and I promise that it is on its way), as you witnessthe change in seasons and deal with the changing industry, know that IA&B is poised to help members face whatevertomorrow brings.

Until next month,

Norm Basso

[ 3 ]

ANSWER:Great question. The flood policy does not always “behave”like a traditional property policy, and you need to knowwhat your options are and make sure that you are in factgoing to have coverage for the tenant. To do so, you needto review the General Rules (p. 13). The section addressingthe improvements and betterments is section F1. Under theJanuary 2013 manual, some slight revisions have beenmade, but the general setup is the same.

The tenant can purchase coverage for the improvementsand betterments under the Contents policy. The maximumamount available is 10 percent of the contents limit, which could very well be insufficient in your case; so youmay have to increase the policy limits. The improvementsand betterments will include such items as fixtures,alterations, installations and additions that become part ofthe building … nothing new here. The new floor wouldmeet those criteria.

The tenant may purchase Building coverage to cover his orher insurable interest in the improvements and bettermentsonly if certain specific conditions are met:

1) The lease agreement signed with the owner must:

a. require the tenant to purchase insurance for thetenant’s improvements and betterments made oracquired by the tenant; and/or

b. state that the tenant is responsible for the repair ofthe building and/or improvements and bettermentsthat become damaged.

2) The building policy must be issued in the names ofboth building owner and tenant, with the tenant’sContents policy remaining separate.

Note: Since the NFIP does not allow duplicate coverage,only one building policy can be issued. If that is the case,caution should be paid to the wording so that both partiescan be properly indemnified; e.g. the policy could be issuedin both names as their interests may appear.

In your case, two hurdles must be cleared.

A) The value of the improvements: Is the value of the floorgoing to be insurable under the Contents policy?

B) The lease: What does the lease currently state? Does it meet one or both conditions above, in which casesecuring coverage under a separate building policy mightbe possible?

DO YOU HAVE A QUESTION? Email it to us at [email protected]. Please use “Primary Agent FAQ” in the subject line of your message. You can also fax your question to 717-795-8347. We lookforward to answering your questions!

Member FAQQUESTION: One of my commercial insureds is a tenant in a commercial building.Shortly after moving in, he installed a $50,000 floor. He bought flood insurance, but I’veheard that coverage for a tenant’s improvements and betterments under the flood policy isdifferent. How do I make sure his floor is properly covered for flood?

1 This reflects the most current manual is available from http://www.fema.gov/flood-insurance-manual at the writing ofthis article. You can access the different sections separately, including the General Rules, to find the latest instructions.

Primary Agent | March 2013

State NewsDAIAB membersset sights on federaladvocacyIndependent agents’ voices will be heard on Capitol Hill. Next month DAIAB members — along with over 1,000 agents from across the country —will congregate in Washington, D.C. for the annual IIABA (Big “I”) NationalLegislative Conference. Participants will meet with their representatives andsenators to discuss terrorism riskinsurance, health care, insuranceregulation and agent licensing, among other hot-button federallegislative issues.

Look for highlights from the April 17-18conference in Agent Headlines andfuture editions of Primary Agent, as wellas on DAIAB’s Twitter feed (@IAB_DE).

CGL and CPchanges loomingProducers should start preparing formajor changes scheduled to affect theCommercial General Liability (CGL) andthe Commercial Property (CP) programsin the spring. Multistate filings submittedby the Insurance Services Office (ISO)have been approved for an April 1effective date. From liquor liability,blanket additional insured, waterexclusion or coverage for roof surfacing,and many more, the changes impactmany different facets of the policies.

DAIAB members must start preparing forcarrier implementation. As with any ISOfiling, some carriers will automaticallyadopt the changes, others may delay theadoption, and others still may adoptsome of them and file their ownseparate forms, picking and choosing the items they wish to retain.

To help members keep up with therevisions — and keep E&O at bay —DAIAB developed a course (approved for8 hours of CE) that will allow producersto understand how the changes expandor reduce coverage and, ultimately, howtheir insureds are impacted.

www.iabgroup.com/education

[ 4 ]

MAP to meetA dozen DAIAB members will weigh inon the association’s new MarketingCenter, education initiatives andadvocacy efforts and will discuss theevolving independent agencyexperience. The 2013 Member AgentPanel (MAP) meeting is scheduled forApril 25 in Dover.

The MAP allows DAIAB to keep a fingeron the pulse of the independent agencysystem. Feedback from the meeting willgo to the association’s board ofdirectors, where leadership will use it tostrategize priorities.

Joann ScottMemorialScholarship appsdue March 15Spread goodwill with an application forDAIAB's annual Joann Scott MemorialScholarships. The $1,500 scholarshipsare awarded to two college-boundstudents planning to enroll as first-yearstudents at an accredited college oruniversity in the fall 2013 semester or to full-time undergraduate or graduate students.

Scott is remembered for her dedicationto DAIAB and for introducing theAccredited Customer ServiceRepresentative designation program toDelaware agents. Interested studentsshould be directed to the DAIAB websitefor more information and an application.

www.iabgroup.com/awards/de_scott_mem/index.html

Awareness weekopens floodgatesfor salesDelaware boasts the lowest averageelevation in the country, with 17 percentof its land and over 18,000 structuresmapped within the 100-year floodplain,according to the Delaware Departmentof Natural Resources.

March 18-22 is National Flood SafetyAwareness Week, an annual NationalWeather Service-sponsored publicawareness campaign — upon whichagents can piggyback to promote theneed for flood insurance.

The DAIAB website is overflowing withflood insurance resources:

� Consumer tips

� Coverage explanations

� Market access

� Sales tips

� Sample notification/rejection ofcoverage form

www.iabgroup.com/de/coverages/flood

[ 5 ]

IA&B announcesnew deputyCEO

Insurance Agents & Brokers haspromoted Jason F. Ernest, Esq., todeputy CEO and counsel. Ernestheads the advocacy department atIA&B, where legal, government andindustry affairs are handled onbehalf of independent agents inDelaware, Maryland andPennsylvania.

Ernest is an undergraduate of ThePennsylvania State University, wherehe majored in Public Policy. Heattended law school at WidenerUniversity, and became licensed topractice in Pennsylvania in 2005.While at IA&B, Ernest successfullyargued before the InsuranceDepartment and theCommonwealth Court, representingthe interests of independent agents.

His background includes over twoyears in the litigation department atthe Washington, D.C. office ofSkadden, Arps and, while in lawschool, work for CincinnatiInsurance and two Harrisburg, Pa.insurance-defense firms.

CompanyAppreciation Night

Save the date of Tuesday,March 19 for DAIAB'sannual CompanyAppreciation Night. The event will kick off with cocktails at 6 p.m.,followed by dinner at 6:45 p.m., at the HiltonWilmington/Christiana. Join fellow independentagents in thanking ourcompany partners fortheir continued support.

[ 6 ]

CURTIS M. PEARSALLCPCU, AIAF, CPIA

Curtis M. Pearsall, CPCU, AIAF,

CPIA, president of Pearsall

Associates Inc. and special

consultant to the Utica

National E&O Program,

supplied this article.

Insurance Agents & Brokers

Service Group Inc. is the

exclusive agent for the Utica

E&O program in Delaware,

Maryland and Pennsylvania.

For questions regarding this

article or your E&O coverage,

contact IA&B at 800-998-9644

or [email protected].


There is an expression in theerrors and omissions world:“Nothing identifies an agent’smistake as quick as acatastrophe.” When anagency has potentiallyhundreds of customersaffected by a singleoccurrence, there is obviouslya greater chance there will bean “error or omission” in atleast one of those files.

In some respects, HurricaneSandy redefined the worstthat can happen. Not onlydid it seem to emerge all of asudden, it wound up taking apath of destruction that hasnever been seen before. Hasthere ever been a weather-related catastrophe thatliterally impacted more than30 percent of the entirecountry? While it may besome time before we knowthe final overall impact of thisstorm, there are reports thatthe total, including economicimpact, could be upwards of$50 billion.

Much of this will be coveredby insurance. Somecustomers, though, who

thought their damage would be covered byinsurance are now findingout differently. This is whyE&O claims have alreadystarted coming in. Presently,it is difficult to foresee anyspecific trends from thisstorm, yet it is projected thatuncovered businessinterruption losses couldresult in a significant numberof claims by customersagainst their agents.

What to doWhere will the next Sandybe? What will it look like?What will be the extent of thedamage? Will it be ahurricane, an earthquake, amassive flood, a tornado orsome other type ofcatastrophe? What are thechances of your communitysuffering from MotherNature’s wrath? No oneknows the answers at thispoint. So, what should welearn from this recentcatastrophe? What, ifanything, should agents do differently or bettermoving forward?

Conduct periodic reviewswith customers. One initiativethat agents should be diligentin performing, if not alreadydoing so, is periodic reviewsfor and with their personaland commercial linesaccounts. The overall goal orfocus should be education.Reviewing the coverages thecustomer has, andaddressing possibleexposures that are currentlyuninsured, will help make thecustomer a more educatedand astute insurance buyer.

Make an offer. Ideally, thisaccount review processshould be performed withevery client. Send a letter toyour customers inviting themto call to schedule a time forthis review. In some respects,now is a great time to do thatas everyone, regardless ofwhether they have beenpersonally affected byHurricane Sandy, can onlywonder how well theirinsurance program wouldrespond if this catastrophehappened to them. Includinga statement such as “We

PREPARING FOR THE NEXTHURRICANE SANDY?10 ways to prevent E&O

PreventingE R R O R S A N D O M I S S I O N S

[ 7 ]

want to make sure you understandthe coverage you have and whatoptions are available” is enticing. It may be somewhat idealistic to think every customer will want thisreview, but just the offer of the reviewcould be a significant part of theagency’s defense if a problem arisesdown the road.

Use an exposure analysis checklist.As you perform the review, use sometype of an exposure analysis checklist(see box). This will assist in ensuringthat the necessary questions areasked and the various exposures areidentified. If the customer declines thecoverage, secure his or her signatureacknowledging the refusal of thatspecific coverage.

Send a letter. At the conclusion of the review, send the customer a letter documenting the issuesdiscussed and the final resolutions.This will serve to identify anymisunderstandings that potentiallyexist. In addition to the valuableeducational component, thisdocument will reinforce that thecustomer is ultimately accountable forhis or her buying decisions. Thisprocess should, in fact, result in newbusiness sales and higher retention.

As you interact with your customers,it might be appropriate to ask “What would happen to you/yourbusiness if Hurricane Sandy hit yourcommunity? Is your insuranceprogram up to date? Do your limits(property/time element, etc.) reflectyour current business model?” If therecent events of Hurricane Sandydon’t result in your personal andcommercial customers reflecting ontheir insurance program, it is difficultto know what will.

Other solid ways to educatecustomersNewsletters. These can be paper orelectronic. Cover issues that areunique to the time of year — season-related matters such as boating issuesor the insurance implications of achild going off to college.

Social media postings. This is a great tool to educate customers on a variety of issues. This also can be a tremendous marketingboost as your followers will clearlysee your expertise.

The insurance proposal. Strengthenyour proposals by includingdefinitions of key insurance terms.Ensure your customers sign-off onthose coverages they do not want.

Look for cross-selling opportunities.Every time your agency interacts with a customer, look for cross-sellingopportunities. Many agencies provide a new business incentive forCSRs in rounding out the insurancefor their customers. This can be awin-win for everyone.

Include limit options for yourcustomer to consider. Not only willthis help them to realize that higherlimits are available, they may alsofind that higher limits are not asexpensive as they originally thought.

Send the customer a cover letter withthe policy, requesting that they reviewthe policy and advise your agency ofany questions or problems. This couldprompt the customer to realize theyhave some coverage gaps.

Take the initiative, sooner rather thanlater, to educate your customers onthe coverage they have and how itwill respond if the next weather-related catastrophe strikes yourcommunity. When that eventhappens, you will be glad you did.

For those agencies affected by thisterrible disaster, our thoughts andprayers are with you and yourentire family of customers.

Exposure-analysischecklistsRough Notes Producer Onlineoutlines the exposures ofbusinesses in over 650 differentindustries, and IA&B membersenjoy discounted access.

Del.: www.iabgroup.com/de/rough_notes

Md.: www.iabgroup.com/md/rough_notes

Pa.: www.iabgroup.com/pa/rough_notes

Coastal Homeowners Insurance

Coastal AgentsAlliance, LLC

Sharon KarlssonPhone: 201-407-7151

[email protected]

Primary and Secondary Homes are eligibleAM Best “A” Rated

15% commissionFor an appointment, contact:

CoverageC O R N E R

[ 8 ]

JERRY M. MILTON, CIC

Jerry M. Milton, CIC teaches

and consults on industry

issues. The legal profession

recognizes him as an

expert on insurance

coverages. He is also the

education consultant for

IA&B, working with CISR,

CIC and continuing

education programs.


An apartment complex wasbadly damaged by atornado. Because of theextensive damage, all thetenants were forced to moveelsewhere. The apartmentbuildings were repaired inthree months, but it tooknine months for the rentalincome from the apartmentsto reach its pre-loss level.The loss of rental income for those nine monthstotaled $210,000.

A tool manufacturer had afire at its plant and, as aresult, was unable tomanufacture any of theirproducts for six months.Once they reopened, theydiscovered that while theywere shut down several oftheir regular customersbegan purchasing their toolsfrom a competitor. Theirincome did not reach its pre-loss level for another six months after theyreopened. Their businessincome loss for those 12months totaled $1,500,000.

A small clothingmanufacturer had a contractto supply jackets to a largenational clothing company.Their plant was badlydamaged by a fire and theplant was shut down for fourmonths. Since they wereunable to supply the jackets,the national clothingcompany terminated theircontract. This contractaccounted for 85 percent oftheir sales. It took another 12 months for the clothingmanufacturer to restore theirsales to their pre-loss level.Their loss of businessincome over that 16 monthperiod totaled $2,400,000.

The apartment complex, thetool manufacturer and theclothing manufacturer hadBusiness Income policieswith limits of insurancesufficient to pay for theirtotal loss. But, were theypaid for the total loss? No! Why not?

The Business IncomeCoverage Form states, “We

will pay for the actual loss ofBusiness Income you sustaindue to the necessary‘suspension’ of your‘operations’ during the‘period of restoration.’” The“period of restoration” endswhen the property at thedescribed premises shouldbe repaired, rebuilt orreplaced with reasonablespeed and similar quality orwhen business is resumed ata new permanent location.

Therefore, the “period ofrestoration” for theapartment complex wasthree months; for the toolmanufacturer, it was sixmonths; and, for theclothing manufacturer, it wasfour months.

However, there is some(very little) good news. TheBusiness Income CoverageForm has an AdditionalCoverage — ExtendedBusiness Income. Thiscoverage begins on the datethe property is repaired,rebuilt or replaced and

BUSINESS INCOME: THE BUSINESS REOPENS,BUT THE LOSS CONTINUES

operations are resumed or tenantabilityis restored. It ends the earlier of thedate that the business income or rentalvalue reaches the level that would have existed if no loss had occurred, or30 days after operations are resumedor tenantability is restored. (Note: The30 days limitation will be increased to60 days under the April 2013Commercial Property revisions.)

So the apartment complex, the toolmanufacturer and the clothingmanufacturer will have coverage fortheir business income loss for anadditional 30 (soon to be 60) days.However, they are not going to be paid for their total loss.

Could, and should, they have beencovered for their total loss? Yes and yes.That 30 (soon to be 60) days can be

increased to 90 days, 120 days, 240days, 360 days or all the way to 730days, in 30-day increments. It’s anoptional coverage — Extended Period of Indemnity.

What about the clothing manufacturer’sloss of income due to the cancellationof a contract. The Causes of Loss Formshave the following exclusion.

Suspension, lapse or cancellation ofany license, lease or contract. But ifthe suspension, lapse orcancellation is directly caused bythe ‘suspension’ of ‘operations,’ wewill cover such loss that affects yourBusiness Income during the ‘periodof restoration’ and any extension ofthe ‘period of restoration’ inaccordance with the terms of theExtended Business Income

Additional Coverage and theExtended Period Of IndemnityOptional Coverage or any variation of these.

What you should be able to say is, “We will cover your loss of businessincome until we run out of money, we run out of days or you return toyour pre-loss level.” Then pray theydon’t run out of money or days before they reach their pre-loss level.

Y’all take care!

[ 9 ]

We help protect them from liability.At PennPRIME, we specialize in risk management for municipal entities. We start by helping you define the factors that affect your total cost of risk, including insurance premiums, proactive loss control and claims reduction. Then, we tailor a solution to help you manage it.

Why take the risk without PennPRIME?

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COVERAGES

The ins and outs ofClaims-Made Policies

Navigating the intricacies of Claims-Made Policies isno easy feat. One missedturn in recognizing andreporting a claim can lead to a dead end — andno coverage. The followingpages shed light on thecomplexities and explainhow agents can lead their clients to a satisfactory finish.


Claims-Made Policy states that a claim must be madeduring the policy period or the extended reportingperiod (ERP), if applicable. Because no two policiesare exactly the same, a basic knowledge of the

Claims-Made Policy, including the definition of a claim, thedefinition of a wrongful act and the claim reportingprovisions, is essential to understanding this type of coverage.

However, this is not as simple as it sounds because there are two distinct types of Claims-Made Forms. One is theClaims-Made & Reported Form and the other is the pureClaims-Made Form.

Claims-Made & Reported FormThe first and most widely used claims-made form today is theClaims-Made & Reported Form. This policy requires that theclaim be made during the policy period or ERP, and reportedduring this same period of the policy currently in force at thetime. A typical policy declaration page of this type may read:“This is a Claims-Made Policy. This Policy covers only thoseClaims first made and reported against the Insured during thePolicy Period or ‘ERP,’ if applicable.”

The key words to look for are “… and Reported.” This issignificant because it stipulates that it must be reported withina designated time frame.

C

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Agency E&O andClaims-Made Policies

Beyond clients’ professional liabilityneeds, your agency’s E&O protection can be impacted positively by choosing a Claims-Made Policy.

The IA&B Sales Center — which operates as an independent insurance agency tooffer E&O and umbrella policies inPennsylvania, Maryland and Delaware —works with several carriers who offercoverage on a claims-made basis.

To learn more, and for a complete review of your insurance program,contact the IA&B Sales Center at 800-998-9644, option 2.

It is critical that the insured fully understands the definition

of a “claim.” Thus, when a claimis triggered by a coveredwrongful act, the insured

can report the claim to thecarrier appropriately and

ensure more complete coverage.

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COVERAGES

Pure Claims-Made FormIn contrast, the less commonlyused pure Claims-Made Form stillrequires that a claim be madeduring the policy period or theERP. However, the majordistinction between this form andthe Claims-Made & ReportedForm is that insured needs onlyreport the claim “as soon aspracticable,” or promptly, and notnecessarily during the policy termwhich, in essence, can beanytime in the future. This formis more frequently used withdirectors and officers liabilitypolicy type policies.

A sample of this wording mayread: “This is a Claims-MadePolicy which applies to ‘claims’first made during the policyperiod or any extended reporting period.”

The difference betweenClaims Made & Reported vs. pure Claims MadeWhile the differences of thepolicies seem subtle, notknowing those differences canhave a dramatic impact on thecoverage. Also, the answers may vary depending on theinsurance company issuing thepolicy. In the professional liabilityinsurance community, “claims-made” terminology is genericallyused whether it is a Claims-Made& Reported Form or a pureClaims-Made Form. Don’t bemisled! Many policies declarethey are Claims-Made, when inreality, they are the Claims-Made& Reported. Some policy formsincorporate either bold wordingon the declaration page or a

statement within the insuringagreement proclaiming the policy is a Claims-Made &Reported Policy.

Be careful: If this wording isabsent, do not assume that theform is a “pure” Claims-MadeForm. You need to dig deeperinto the policy and examine the“Notice of Claim” reportingprovisions of the policy. This iswhere you will find additionalreporting conditions andrestrictions. If it is a Claims-Made& Reported Form, it willgenerally state that the claimmust be reported within thepolicy period or another specific time frame, which can be as many as 60 days after thepolicy expiration. It is alsoimportant to point out that thepure Claims-Made Form has no such restrictions.

The wording may read somethinglike this: “The Insured shall, as acondition precedent to theobligations of the Companyunder this Policy, give writtennotice to the Company of anyClaim made against the Insuredas soon as practicable during thePolicy Period. There shall be nocoverage for any Claim reportedto the Company later than 60days after the expiration of thisPolicy or after the expiration ofany applicable Extension Period.”

The wrongful actThe “wrongful act” starts thesequence of events thatultimately leads to a claim. Awrongful act is any actual oralleged error, omission ornegligence committed by the

named insured. However, thedefinition of wrongful act variesdepending on the type ofprofessional liability policypurchased. For example, themost common definition ofwrongful act in an EPL policyincludes “sexual harassment,discrimination or wrongfultermination.”

Conversely, the definition ofwrongful act in a D&O policy can be “any actual or allegedbreach of duty, misstatements or misleading statementscommitted by the insured.”Therefore, the wrongful actserves as the “claim trigger”under a Claims-Made Policy.

What is a claim?Before an insured can report aclaim, he or she needs to knowwhat constitutes a claim. In many instances a claim may bedefined as “an oral or writtendemand for monetary or non-monetary damages, including any judicial or administrativeproceeding.” (It should be notedthat not all policies utilize thisexact wording.)

To gain a deeper understanding,we will look at a couple ofexamples relating to EmploymentPractices Liability claims.

Case No. 1:During the policy period, theinsured received a notice fromthe Equal EmploymentOpportunity Commission alleging“discrimination” (i.e. “a wrongfulact”) by a former employee, andthe insured does not report it tothe carrier. By the policy

definition, that notice (i.e. anadministrative proceeding) would be considered a claim.Unfortunately, the insured maynot realize that this would bedeemed a claim because anactual lawsuit or demand wasnot filed against him or her.Therefore, the insured may not be compelled to report this to the carrier.

In that situation, if a lawsuit werefiled against the insured after thepolicy expiration, after the ERP, if applicable, or even against asubsequent policy term, nocoverage would be affordedbecause the notice by the EEOCserved as the actual notice ofclaim, not the lawsuit recentlyfiled. Conversely, if the insuredreports the EEOC complaintduring the policy period on the 60day ERP in this case, coveragewould apply. (See Figure 1.)

Case No. 2:An employee of a furnituremanufacturer was being sexuallyharassed by another employee.The harassed employee informedthe supervisor of this incident viaemail and asked for intervention(i.e. “non-monetary demand”).The supervisor took an internalreport, but did not report theclaim to the insurance companyduring the policy period or 60 dayERP. Seventy-five days after thepolicy expired, the harassedemployee filed a lawsuit againstthe company, and then the claimwas reported to the carrier.

Coverage was subsequentlydenied because the claim wasnot reported during the policy or

ERP. In this case, the insured didnot realize that the notice to thesupervisor of the harassmentactually served as notice of aclaim under the definition of thepolicy because that was the claimtrigger. (See Figure 2.)

A claim can only occur if awrongful acts triggers coverage.In analyzing the previousscenarios, the allegations ofdiscrimination and harassmentwere the wrongful acts thattriggered the claims. Moreover,those wrongful acts could have occurred at any time in the past, even years before,provided it was not before anyretroactive date imposed by the carrier and/or prior to thepolicy expiration.

Therefore, it is critical that theinsured fully understands thedefinition of a “claim.” Thus,when a claim is triggered by acovered wrongful act, the insuredcan report the claim to the carrierappropriately and ensure morecomplete coverage.

Reporting a claimBecause of the stringentreporting requirements ofClaims-Made Policies, notknowing when or what to dowhen a claim arises can spelldisaster for an insured.

It is the insured’s obligation toreport a claim or a potentialcircumstance that could give riseto a claim to the carrier. Whilemany insureds might be inclinedinitially to try to handle claimsinternally to avoid reporting tothe carrier, the delay in reporting

can easily be detrimental to theinsured and put the coverage injeopardy. Unlike other types ofpolicies, professional liabilitypolices are very explicit on howand where to report a claim. Thereporting requirements cannot bestressed enough because failureto comply with the policyprovisions can bar coverage foran insured. We encourage clientsto report everything to protecttheir rights and allow us tohandle the renewal negotiations.

In contrast, the pure Claims-Made Form requires that theclaim be reported promptly or as soon as practical. That, ofcourse, is very subjective and, in theory, can be reported at any time in the future even after policy expiration. However, this is certainly not an advisable approach.

In addition to the Claims-Madeissue, many policies provide anawareness provision that allowsthe insured the ability to reportany incidents or circumstance theinsured may become aware ofthat may lead to a future claim.That also has a window thatstates such notice must be givenduring the policy period.

When a circumstance is reported,it will be considered to have beenreported during that policy periodshould it result in litigation afterthe policy has expired. Becauseeach policy has a differentreporting provision, it isimportant that the insured knowsand understands his or herreporting requirement.

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[ 14 ]

COVERAGES

In the last hard market, at least one carrierintroduced a Claims-Sustained policy. Althoughunique and rare, during the past 15 years, a number of both D&O and E&O underwriters have used Claims-Sustained policies. Those types of policies prohibit any notice of a claim other than actual litigation.

Each policy specifically outlines when and howclaims need to be reported. While numerous carriersprovide an automatic reporting period after the policyhas expired, that period is normally limited to nomore than 30 to 60 days.

It is also important to bear in mind that any extendedreported period provided by the policy only extendsthe period in which a claim may be reported. Thewrongful act must have occurred prior to theexpiration of the policy. The insured needs to knowthat a claim should always be reported to the existingcarrier providing the coverage at the time, not thecarrier who was on risk when the wrongful acts werealleged to have occurred.

The only exception to this may be where a potentialincident or circumstance was previously reported to a previous carrier.

Simply renewing with the incumbent carrier does notcircumvent the need to report the claim within thepolicy term or applicable ERP. It is often assumed thatif an insured renews with the same carrier, thereporting requirement continues into the next term.

This is a common misconception that should beaddressed as part of any comprehensive renewalprocess. Keep in mind, unless the carrier haschanged its form on the renewal (as some carriershad done during the hard market by replacing theClaims-Made Form with more restrictive Claims-Made & Reported language), the policy wording will not usually change. Therefore, the reportingrequirements will most likely remain the same unlessnotified by endorsement at the time of renewal.

While the pure Claims-Made Policy is certainly themost advantageous Claims-Made form that providesthe broadest reporting allowance, it is rarely used.Thus it is imperative that the insured becomesfamiliar with the Claims-Made & Reported Form,

because it is more likely that this will be the policy he or she will need to know when a claim comesdown the road.

___________________________________________________

Wayne E. Bernstein is director of professional lines forMonarch E & S Insurance Services, a managing general agentand wholesale broker. Phone: (805) 577-6800, Ext. 223. Email:[email protected].

Reprinted with permission from Insurance Journal, October2005. On the Web at www.insurancejournal.com © WellsPublishing, Inc. All Rights Reserved. Foster Printing Service:866-879-9144, www.marketingreprints.com

A strong company

just got stronger!

We are proud to have joined the

Berkshire Hathaway Group – and give you

one more reason to consider requesting

a GUARD agency appointment.

Visit www.guard.com/apply or call

800-673-2465, ext. 4567!

®

a Berkshire Hathaway company

Property and casualty insurance for small- to mid-sized

employers – workers’ compensation coverage is our

traditional specialty.

Producer Peak PerformanceApril 15-18 IA&B Headquarters Mechanicsburg, Pa.

Read more and register at iabgroup.com/performance

DriveInsurance

SalesLed by an accomplished independent agent with real-world experience as a top producer, this extended program is a new, unique and affordable opportunity to give producers the skills and knowledgeto shift sales into high gear.

Marketing Center tip! Want to send the consumereducation pieces via email ornewsletter? Then take advantage ofIA&B’s partnerships with StrategicAgencies newsletter service andGetResponse email blasts fordiscounted access to print andelectronic communications. Readmore in the Marketing Center.

IA&B Marketing CenterConsumer education piecesPosition yourself as a trustedinsurance expert

Stay visible to consumers (current customers andprospects) by communicating regularly on proper coverage, not about price.

IA&B saves you the time and effort with a library ofinsurance information that you can use to respond toquestions — or to proactively educate your target market.Vetted by insurance and legal experts and reviewed byindependent agents, the content is truly turnkey, availableas raw text for copying and pasting into an email,newsletter or other communication vehicle and as fullydesigned, customizable marketing flyers.

Consumer content topics:Collision Damage Waiver (for rentals)

Condo Insurance Basics

Cyber Liability

Employment Practices Liability Insurance

Flood Insurance & Water/Sewer Backup

Homeowners' Insurance

Insurance for College Students

Limited-Tort vs. Full-Tort

Personal Umbrellas

Why Choose an Independent Insurance Agent

Look for additional consumer content in the coming months.

Visit the Marketing Center:www.iabgroup.com/de/marketing

Date Topic Location

5 CISR Personal Auto Hagerstown, Md.

Commercial Changes: Property & CGL Revisions Pittsburgh, Pa.

5-7 L&H Licensing Study Course Philadelphia, Pa.

6 CISR Agency Operations Lehigh Valley, Pa.

7 CISR Agency Operations York, Pa.

11 CISR Personal Residential Philadelphia, Pa.*

11-14 CIC Personal Lines Erie, Pa.

12 William T. Hold: Learning From Losses Lancaster, Pa.

CISR Personal Auto Philadelphia, Pa.*

13 Commercial Changes: Property & CGL Revisions Mechanicsburg, Pa.

CISR Agency Operations Philadelphia, Pa.*

13-14 James K. Ruble Ellicott City, Md.

14 CISR Commercial Property Philadelphia, Pa.*

15 CISR Commercial Casualty II Philadelphia, Pa.*

19 CISR Agency Operations Pittsburgh, Pa.

20-23 CIC Commercial Casualty Newark, Del.

20 William T. Hold: Learning From Losses Mechanicsburg, Pa.

CISR Personal Auto Pittsburgh, Pa.

21 William T. Hold: Learning From Losses Baltimore, Md.

26 Commercial Changes: Property & CGL Revisions Philadelphia, Pa.

CISR Commercial Casualty I Wilkes-Barre, Pa.

27 CISR Personal Auto Lancaster, Pa.

Commercial Changes: Property & CGL Revisions Lehigh Valley, Pa.

Glance at EventsMARCH CALENDAR

[ 17 ]

* = CISR Marathon Week

Founded in 1917, HarleysvilleInsurance is a leading regionalprovider of insurance products

and services for small and mid-sizedbusinesses, as well as for individuals—ranking among the top 60 U.S.property/casualty insurance groupsbased on net written premiums.Harleysville also is ranked nationallyamong the largest commercial multi-peril insurers and “Write Your Own”flood insurance carriers.

In May of 2012, Harleysville became amember of the Nationwide family ofcompanies within their property andcasualty independent agencyoperations. Under the Harleysvillebrand, the company partners withAllied Insurance to operate a nationalindependent agency distributionnetwork, with Allied operatingprimarily in the Midwestern andWestern portions of the country, andHarleysville operating primarily in theNortheast and Mid-Atlantic regions.Harleysville’s headquarters inHarleysville, Pa., serves as an integralpart of Nationwide’s independentagency-based platform.

Harleysville offers a diversifiedinsurance portfolio, includingpersonal insurance, businessinsurance, inland marine, flood,human services, and life andemployee benefits. Agents also haveaccess to a growing number ofproducts from certain otherNationwide-affiliated companies, suchas Nationwide Financial, NationwideSurety & Fidelity, and Titan Insurance.Commercial lines account for morethan 75 percent of Harleysville’sproperty and casualty premiums.

At the heart of Harleysville’s successare the lasting partnerships thecompany has developed with itsmore than 1,300 independentagencies. Harleysville distributes itsproducts exclusively throughindependent insurance agencies anddemonstrates that commitment to itsagency force by being a TrustedChoice® company partner. Toperpetuate its longstanding agencyrelationships, Harleysville providesdecision-makers close to the point ofsale—field underwriters dedicated tospecific business segments andcustomer service representativeslicensed to assist agents with theiraccount management responsibilities.

Having “Good people to know” at alllevels of the organization serves todefine Harleysville in the marketplaceby delivering on its brand promiseevery day—making it easy for agentsand policyholders to do business withthe company through advancedtechnology and superior customersupport services.

FEATURED PARTNERHarleysville Insurance

CHIEF OPERATING OFFICERMichael L. BrownePresident and COO

COMPANY LOCATIONSHome office in Harleysville, Pa.,

with four regional and16 branch offices

A.M. BEST RATINGA (Excellent) Positive outlook

WEBSITEwww.harleysvillegroup.com

Company profile compliments of the magazine in appreciation of Harleysville’s Platinum level support

of the Insurance Agents & Brokers Service Group (serving agents in DE, MD & PA)

“As a member of theNationwide organization,Harleysville’s commitment tothe independent agent growseven stronger. Our support ofthe IA&B Partners Program isjust one of the many ways ourcompany will continue toinvest in the future of our soledistribution outlet.”

—Michael L. Browne,President and COO

BUSINESS | HUMAN SERVICES | INLAND MARINE | PERSONAL | LIFE/EMPLOYEE BENEFITS | FLOOD

Platinum Profile

Insurance Agents & Brokers proudlyrecognizes Millers Mutual Group as oneof its Platinum Partners. IA&B PlatinumPartners dedicate the highest level ofsponsorship to our organization.

Still more.You’ve probably heard us say “There’s more for you at Millers.”It’s a slogan that fits us well. Our agent partners have seen “more”in our bigger, broader underwriting appetite. Which is why we’rewriting a whole lot more Main Street commercial package and BOPbusiness of all kinds these days.

But the “more” at Millers goes beyond what we write. It’s how weconduct our business. Like giving agents truly personal support.Like making sure our underwriters are always accessible. Likedoing business on a first name basis. Give us a call, send us ane-mail, and we’re on it, getting answers right now when you needthem. And of course, courtesy, respect and integrity are always agiven at Millers Mutual. Agents have told us how much they admirethat, and it’s a compliment we never tire of hearing — or living up to.

If all that sounds more to your liking than the serviceyou may be getting now, Millers Mutual could bea welcome presence in your agency. We’re aregional insurer — operating in the Mid-Atlanticstates — with an A- (Excellent) A.M. Best ratingand superb financial strength ratings acrossthe board. So we have the financial muscleto be a substantial player in your agency aswell as the attitude that will make us a welcomeand valued addition.

There’s still more to discover at Millers. And agrowing list of reasons you’ll like what you find.

Give me a call and let’s talk about howwe might help.

Robert L. Lyon

“We have thefinancialmuscle to bea substantialplayer in youragency andthe attitudethat willmake us awelcome and valuedaddition.”

FEATURED PARTNER:Millers Mutual Group

CHIEF EXECUTIVE OFFICER:Robert L. Lyon,President/CEO

COMPANY LOCATION:Harrisburg, Pennsylvania

A.M. BEST RATING:A- (Excellent)

Platinum Profile

WHAT IS IA&BPARTNERS?The IA&B Partners

program gives company

and allied businesses

the opportunity to

demonstrate their

commitment of support

to independent agents

and receive maximum

market exposure. As an

IA&B Partner, you will

also realize the benefits

of IA&B membership to

help you succeed in

the insurance industry.

DO YOU SEEYOUR NAME?To become an IA&B Partner,

choose the sponsorship

package that matches your

commitment of support.

Contact the Member Sales

Center at 800-998-9644,

717-795-9100 or visit us

online at www.iabgroup.com

to get started.

Listed below are those companies that strongly support the independent agencysystem and Insurance Agents & Brokers.

Thank you for your continued sponsorship.

PLATINUM LEVELACUITYBerkley Mid-Atlantic GroupDonegal Insurance GroupErie Insurance GroupHarleysville InsuranceHM Insurance GroupInsurance Agents & BrokersService Group Inc

Liberty Mutual Insurance

MMG Insurance CompanyMillers Mutual GroupMillville Mutual Insurance CoMutual Benefit GroupPenn National InsuranceSelective Swiss ReThe Main Street America GroupUtica National Insurance Group

GOLD LEVELProgressive Westfield Insurance

SILVER LEVELAccess Insurance Company Allied InsuranceAmerican Mining Insurance CoCumberland Insurance GroupFrederick Mutual Insurance CoJuniata Mutual Insurance CoPSBA Insurance TrustThe Philadelphia Contributionship

BRONZE LEVELAegis Security Insurance Co

Agency Insurance Company

AmWINS Program Underwriters Inc

Auto-Owners Insurance Company

Briar Creek Mutual Insurance Company

Builders Insurance Group

Chubb Group of Insurance Companies

Countryway Insurance Company

Encompass Insurance

First General Services

Foremost Insurance Group

Goodville Mutual Casualty Company

Guard Insurance Group

Harford Mutual Insurance Co

Hanover Fire & Casualty Insurance Company

Insurance Alliance of Central PA Inc

Insurance House

Insurance Placement Facility of PA

Keystone Insurers Group Inc

Lebanon Valley Insurance Company

Mercer Insurance Group

Merchants Insurance Group

Mercury Casualty

Penn PRIME Municipal Insurance

Reamstown Mutual Insurance Company

Rockwood Casualty Insurance

State Auto Mutual Insurance Company

TAPCO Underwriters Inc

The Brethren Mutual Insurance Company

The Motorists Insurance Group

The Mutual Service Office Inc

Travelers

Tuscarora Wayne Insurance Company

Zenith Insurance

Primary Agent March 2013

Primary Agent | March 2013 TechnologyU P D A T E

DANIEL BURRUS

Daniel Burrus is considered one of

the worlds leading technology

forecasters and business

strategists, and is the founder and

CEO of Burrus Research

(http://www.burrus.com/), a

research and consulting firm that

monitors global advancements in

technology driven trends to help

clients understand how

technological, social and business

forces are converging to create

enormous untapped opportunities.

He is the author of Flash Foresight

(available at www.amazon.com).

[ 22 ]

WHAT’S YOUR COMPANY’S CASH COW?

Most companies begin with a flash ofinnovation. They come out with a newproduct or service customers can’t livewithout and make their mark with their “cashcow.” Of course, a cash cow is a company’smajor source of money. They then “milk” thecash cow for all it’s worth. If they’re smart,they create some additional cash cows, butthat isn’t always the case.

We saw much of this scenario play out withGoogle, a company that was very focused oninnovation. Their initial cash cow was theadvertising dollars around search. And one ofthe great things that Google did was to keepthe pipeline of innovation going byencouraging the Google engineers to spend20% of their time coming up with new ideas.They even provided resources for theengineers to be creative. The result? It yieldedlots of great stuff from Google, includingGmail, Chrome, and many other advances.

Where has the innovation gone?Predictably, based on hard trends, we can seethat the main computer people use has beenshifting from a laptop/desktop to a smartphone or tablet. And even though that shiftstarted happening just two short years ago,the reality is that it was very predictable.

So what did Google do? They innovated andcopied to a degree and came out with theAndroid. Unfortunately, it was more copyingthan innovating. Don’t get me wrong…therewas some innovation, but it wasn’t as high-level of innovation as we had seen in the past.

Where Google was falling behind, of course,was in social media. Facebook had corneredthat market. And this was where it looks likesome mistakes started to occur, becauseGoogle shifted their focus from “innovation”to “beating the competition.”

One of the problems of focusing onthe competition is that you end upcompeting with them. In contrast,when you focus on innovation, youbecome the competition. That’s a big difference.

Realize that when you try to copysomeone, you can never really catchup, because the leader is constantlyinnovating. Unless you manage tojump ahead in a big way, you’realways behind. And that’s whathappened when Google releasedGoogle+, their counter to Facebook.It’s too much copying and trying tocatch up with Facebook and notenough innovating.

Unfortunately, the company was sofocused on social media that all of theengineers were told to put their

innovation around social. In otherwords, they were told to spend 20% oftheir time focused on innovation, solong as that innovation was aimed atsocial media. This mandate, of course,diluted the innovation engine. A betterapproach would have been to jumpahead—to look where social media isgoing and innovate there to create anew bouncing baby cash cow.

The future of the WebWhere is the web and social mediagoing? Well, it started with search, whatI call Web 1.0. Of course, Yahoo startedthat long before Google, giving usaccess to information. Then Web 2.0came along with the key focus beingcontent sharing and social media.

Back in 1993 I wrote about this shift inmy book Technotrends, and I said that

when our devices (phones andcomputers) become truecommunication age devices, so that wecan use them for informing andcommunicating (think smart phone),then we’d have another revolution.And, of course, that’s exactly whatApple helped to spur when they cameout with the iPhone and gave us a truecommunication/information agedevice. They combined the informationage and communication age.

What’s next? If you look ahead, whichis what I’d like Google to do, you’llsee that we’re embarking on Web 3.0,which is all about immersion. It’s the3D experience. But I’m not talkingabout 3D as we’ve known it for years,where you have to put on fancyglasses. That’s too cumbersome.


[ 23 ]

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I’m talking about using our main computers, tablets, smartphones, and games and having a fully-immersed 3Dexperience where you go into environments (think X-Boxgaming), as well as having things sticking out at you, likewhen you wear the 3D glasses. As it turns out, you canhave that experience on smart devices right now, withouthaving to wear glasses. It’s already happening in thegaming world.

So let’s turn this around to Google. What innovation iswaiting for them to seize? How about a 3D web browser?That would be innovative. That would be a cash cow!

Why? Because web pages right now are like a flat piece ofpaper, except they have a hyperlink and perhaps anembedded video. So we can watch a video, but it’s a flatvideo—it’s not 3D. But what if we had a 3D browser anddidn’t just look at a web page, but actually went into it andexperienced it? Now that changes the game.

Let’s then look ahead even more. After Web 3.0 is Web 4.0,which is all about intelligence—the personal assistant. Applehas already started this with Siri, where you can talk toyour smart phone and get answers. And, of course, Siri willget smarter over the years.

Could Google have done what Apple did? Yes. In fact, theyalready had the ability to do so with their mapping feature,where you could type in “Where is a restaurant in Del Mar,California?” and then Google would send you to a website.Imagine if they would have made it something you talkto…and that responds to you in voice.

The point is that Apple innovated outside of their core.Because they were focused not just on one thing—not juston smart phones or tablets—but rather on innovation, theywere able to jump ahead. They were looking in front ofthem rather than at what everyone else was doing.

By the way, Google did come out with their e-personalassistant. So what are they doing? They’re playing thecatch-up game…yet again.

Crank up the innovation engineWhat I’d like to see Google and all companies do is to getback on the innovation bandwagon. Everything isn’t social.Yes, social is big, but there’s far more to it than that.

So here’s the moral to all this: Don’t just milk your cashcow. True success comes when you create some newbouncing baby cash cows, and you do that by keepingyour focus on innovation. We’re in a new world ofexponential transformational change. The playing field hasbeen leveled, and the game is changing. It’s time to stopplaying the old game and start defining the new one.

TECHNOLOGY UPDATE

��

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Tradition, Community, caringTradition, Community, caringTradition, Community, caring

��

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[ 24 ]

Coastal Agents Alliance . . . . . . . . . . . . . . . . . . . .7

Guard Insurance Group . . . . . . . . . . . . . . . . . .14

Harleysville . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

IA&B Partners Program . . . . . . . . . . . . . . . . . . .21

IA&B Producer Peak Performance . . . . . . . . . .15

Insurance Club of Pittsburgh . . . . . . . . . . . . . .24

Interstate Insurance Mngmnt. . . . . . . . . . . . .OBC

Millers Mutual . . . . . . . . . . . . . . . . . . . . . . . . .IFC

PennPRIME Municipal Insurance . . . . . . . . . . . .9

Preferred Property Program . . . . . . . . . . . . . . .23

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The research, conducted by LexisNexis® and RGA ReinsuranceCompany, determined MVRs are predictive of “all-cause mor-tality” – general likelihood of dying, not specific to car crashes.The study found that drivers with major violations (i.e. drivingunder the influence, speeding excessively) had 70 percenthigher all-cause mortality rates than drivers who did not. Andthose with six or more driving violations had an 80 percenthigher rate.

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----------------------------------------------------------------———————-------The Last & Least column is dedicated to the industry’s oddities —from creative claims and kooky coverages, to (tasteful) jokes andstrange stories. Submit yours to [email protected], subject line:Last & Least. The editor will happily protect sources’ anonymityupon request.

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Documents

Primary Agent - March 2013 - DE Edition