Property/Casualty Insurers Dispute Consumer Group Over Claims That It Overcapitalized

“The Insurance Industry’s Incredible Disappearing Weather Catastrophe Risk” is a new report released by the Consumer Federation of America (CFA). The consumer group claims insurers aren't paying their fair share of weather-related claims, arguing that insurers have shifted costs to consumers by increasing deductibles and capping the amounts they will pay if a home is damaged or destroyed.


But property/casualty insurers aren't seeing eye to eye with the CFA on this one. Final numbers aren't in yet, but it looks like 2011 will be one of the most expensive years on record for private P/C insurers for U.S. catastrophe losses. Private U.S. insurers’ net losses on underwriting grew to $34.9 billion in nine-months 2011 from $6.3 billion in nine-months 2010. The 2011 numbers, insurers say, clearly illustrate that they took on a record amount of risk last year.


The CFA is calling on state regulators to block insurer rate hikes.

Read the rest of this article, originally published in the Insurance Journal, here.

Insurer's 'Duty to Defend' Reexamined in 10th Circuit's Ruling on Late Night Bar Brawl

The 10th Circuit Court of Appeals' ruling in a recent case involving a late night bar brawl at the Okmulgee Inn forced one insurer to reexamine the standard for duty to defend in light of unusual extrinsic evidence.

In Mount Vernon Fire Ins. Co. v. Okmulgee Inn Venture, LLC, the Tenth Circuit Court of Appeals recently demonstrated how an "extrinsic evidence" duty to defend standard can create a duty that unquestionably did not exist based on a "four corners" standard. Not to mention that the court did not exactly search high and low to locate the extrinsic evidence that it used to create the duty to defend.

In Okmulgee Inn Venture, the court addressed coverage under the following scenario:

Okmulgee Inn Venture leased space to a nightclub-bar and was a named insured on a liquor liability insurance policy. Okmulgee was insured against injuries caused by "the selling, serving or furnishing of any alcoholic beverage." Okmulgee Inn Venture at 2.

"In 2006, three bar patrons sustained gunshot wounds during a fight at the nightclub and sued Okmulgee, alleging, among other things, that Okmulgee failed to ensure the safety of the bar's patrons, properly train the bar's staff, or investigate the bar's operator. The only specific allegations pertaining to alcohol were that two of the three victims were under-age but were admitted to the bar and served alcohol. Mt. Vernon refused to defend Okmulgee in these suits. Mt. Vernon asserted there was no coverage under the policy, and thus no duty to defend or indemnify, because the allegations did not indicate the injuries were caused by the selling, serving, or furnishing of alcoholic beverages. Mt. Vernon then initiated this declaratory judgment action to determine its obligations." Id. at 3.


In other words, Mt. Vernon refused to defend Okmulgee because there was no allegation that the shooter was drunk or that the shooter was served alcohol. Rather, it was only alleged that the victims were served alcohol. Thus, Mt. Vernon asserted that there were no indications that alcohol caused the injuries. Id. at 4. The District Court agreed that no duty to defend was owed because the "precise facts alleged against the insured did not demonstrate there was coverage under the policy." Id. at 2. The Tenth Circuit reversed: "We agree the facts fail to conclusively demonstrate coverage, but we think there is still a potential for coverage as permitted by Oklahoma law." Id.


At the heart of the Tenth Circuit's decision was Oklahoma's duty to defend standard: "[T]he insurer's duty to defend its insured arises whenever the allegations in a complaint state a cause of action that gives rise to the possibility of a recovery under the policy; there need not be a probability of recovery." Id. at 5 (citations and internal quotes omitted; emphasis in original). However, this "analysis is not restricted to the four-corners of the complaint; rather, an insurer's defense duty is determined on the basis of information gleaned from the petition (and other pleadings), from the insured and from other sources available to the insurer at the time the defense is demanded." Id. (citations and internal quotes omitted). Moreover, "[t]he insurer has a duty to look behind the third party's allegations to analyze whether coverage is possible." Id. at 6 (citations and internal quotes omitted).


Applying this standard, the Tenth Circuit concluded that a defense was owed:


The parties dispute whether the facts demonstrate that alcohol caused the injuries, but the issue is whether the facts establish a potential for coverage, that is, whether the circumstances alleged give rise to the possibility that the injuries were suffered by reason of the selling, serving, or furnishing of alcoholic beverages. And on this score, we have little difficulty concluding that they do. The victims entered the bar and were served alcohol; a bar-fight ensued and witnesses recalled beer bottles shattering; then gunshots were fired by a shooter who had been previously arrested at the same bar for being drunk in public. These known and undisputed facts establish the possibility that alcohol contributed to the injuries. We do not mean to suggest, of course, that the potential for coverage exists because "later-revealed facts" may show coverage[.] . . . But the known and undisputed facts in this case, standing alone, establish a credible possibility that the injuries sustained were caused by the selling, serving or furnishing of alcoholic beverages.

Id. at 5-6 (emphasis in original).


While there is nothing unusual about a court looking to extrinsic evidence to determine a duty to defend, Okmulgee Inn Venture seemed to take it a step further - considering extrinsic evidence that might exist. The court seemed to be saying: "Come on, look at these facts, how could alcohol not have played a part in this." The court didn't explicitly say that, but that was its clear message nonetheless.


The Okmulgee Inn Venture court was quick to add that, by its decision, Mt. Vernon's duty to indemnify was not yet ripe. But having found a duty to defend - that admittedly did not exist based on the four corners of the complaint - the underlying plaintiff is now in a position to use the insurers' exposure for defense costs as leverage to secure a settlement than may otherwise be subject to coverage or liability defenses. Read the full story here

Miami Herald's new blog shines light on south Florida's entrepreneurial spirit

Entrepreneurs are the engine of the economy, and their fundamental role is especially highlighted during tough economic times. The innovators--individuals whose fear of losing does not prevent them from acting--these are the people who put Americans back to work.

Becoming a successful entrepreneur is no small feat. But it just got a little easier for south Floridians. The Miami Herald has just launched a new blog, “The Starting Gate,” self-described as “news, views and tools for startups and small businesses.”

Workers’ Compensation Turn a Profit? Fahgettaboudit!

Workers’ compensation carriers with visions of profits over the next few years are dreaming.

It ain’t goin’ to happen, according to insurance analysts at Standard & Poors Ratings Services.

“All signs are pointing to more unprofitable years ahead for the workers’ compensation insurance industry,” the firm said in its report titled “For The U.S. Property/Casualty Industry, Making Workers’ Compensation Profitable May Be Mission Impossible.”

Why the negativity?

S&P blames continued high unemployment, a sluggish economic recovery, potential for higher inflation on future claims payments, adverse reserve developments, and a volatile investment environment with historic low investment yields.

What’s more, the workers’ compensation industry hasn’t been great at making a profit in the recent past.

All of that could add up to many years of unprofitability for the workers’ compensation industry.

S&P said that this industry has a “dismal track record” of underwriting results as illustrated by only three years of underwriting profits over the past two decades (1991-2010). Between 1991 and 2010, the industry statutory combined ratio was below 100 percent in 1995, 1996, and 2006.

A combined ratio of more than 100 percent signifies an underwriting loss. Although many property/casualty (P/C) insurers, especially those writing workers’ compensation, rely on investment incomes to offset underwriting losses, current historically low investment yields could also hinder such dependence going forward.

In light of these factors, Standard & Poor’s Ratings Services said it remains bearish on this line. Despite pockets of rate increases in a few states, S&P said it believes the negative factors point to years of unprofitability in this line.

S&P also said it believes many P/C insurers with meaningful concentration in workers’ compensation will continue to report underwriting losses in this line over the next few years, primarily arising from recent accident years (2007-2010).

Workers’ compensation pricing showed a modestly improving trend in the latter part of last year. If it persists, it could potentially lead to industrywide rate improvements for many casualty lines. However, S&P said it is unsure whether the current pace of rate increases in workers’ compensation will be sustainable over the next few years, and, if so, whether it will be sufficient to overcome increased loss costs.

The workers’ compensation industry’s reserves will remain inadequate over the next few years, in S&P’s view. Its analysts expect many insurers with meaningful concentration in workers’ compensation to strengthen their prior year reserves, especially for accident years 2007-2010.

S&P, which monitors quarterly reserve developments for all P/C insurers, said that if certain P/C insurers substantially strengthen their reserves, especially for recent accident years, such that their operating earnings fall materially below expectations, its analysts would consider lowering some ratings.

Face-to-Face Encounters: Avoiding Liability for Abandonment

Providers are at risk for legal liability when they terminate services to patients. Termination of services has historically been warranted by the following circumstances, among others: violence or threatened violence, noncompliance by patients and/or primary caregivers, inability to provide adequate assistance, or inappropriateness for services. Providers are understandably concerned about the possibility of legal liability associated with the termination of beneficial services.

Specifically, they frequently express concern about the possibility of liability for abandonment of patients. The Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (DHHS), the primary enforcer of fraud and abuse prohibitions, has indicated that abandonment of patients may also constitute fraudulent conduct.

Providers now have new concerns regarding liability for abandonment in light of requirements for face-to-face encounters. Specifically, providers may not be paid for services rendered if patients have not had appropriate face-to-face encounters with physicians during required time periods. It is important, therefore, for providers to understand how to terminate services without liability for abandonment.

Practitioners often speak of abandonment as though it is equivalent to termination of services. On the contrary, patients who want to hold providers liable for abandonment must show that:

1. Providers unilaterally terminated the provider/patient relationship;
2. Without reasonable notice;
3. When further action was needed.
Patients who fail to prove any one of these requirements are likely to lose their lawsuits against providers.

The second requirement of abandonment provides a key basis for avoiding liability for abandonment. Providers will not be liable for abandonment as long as they give patients reasonable notice prior to termination of services. The key question is: what is "reasonable" notice, especially in view of new face to face encounters?

Many providers historically viewed thirty days as the minimum number of days required for reasonable notice. This period of time is too long for most patients, including patients who have not had required face-to-face encounters. A more reasonable period of time for most patients, unless a specified period of notice is mandated by state statute or regulation, is probably one to three days.

After staff members agree upon a reasonable notice period, patients and attending physicians should receive verbal and written notice. Written notices should be hand-delivered to patients’ homes. Although it is desirable, it is unnecessary to obtain a signature verifying receipt. Written notices to physicians should be faxed to them.

When the date for termination of services arrives, providers must terminate care as planned. Practitioners are sometimes tempted to continue in the face of pleas from patients, physicians, and/or family members. Providers must bear in mind, however, that their organizations, whether for-profit or not-for-profit, simply cannot afford to render unlimited amounts of uncompensated care. The consequence of lack of attention to fiscal limitations may be the disruption or unavailability of care to many patients.

Finally, providers can defeat claims of abandonment if patients for whom services are discontinued need no further attention. How do providers know whether further attention is needed? Is this requirement as subjective as it appears? On the contrary, judges are likely to make retrospective determinations about whether further attention was needed. The basis for such determinations will probably be whether patients were injured as a result of termination.

In other words, the law is likely to conclude that no further attention was needed, so long as patients are not injured as a result of termination of services. What kind of injury must patients prove? Can patients who attempt to prove emotional damage only as a result of termination of services by case managers win lawsuits?

The "good news" for providers is that courts generally require proof of physical injury or damage before they will find providers liable for abandonment. Providers must, therefore, take appropriate steps to make certain that patients are not physically injured as a result of termination of services. In rare instances, appropriate action may include sending an ambulance to take the patient to the nearest hospital. If the patient refuses transport by ambulance, the patient will have been contributorily negligent or will have assumed the risk, so providers are likely to avoid liability.

Now is the time for providers to educate themselves about the possibility of liability for abandonment. Positive steps must be taken in order to prevent this type of legal liability in view of the uncertainty of the impact of requirements for face-to-face encounters.

by Elizabeth E. Hogue, Esq.