Insurancejournall Thu, 09 Jul 2020 06:06:41 +0000 en-US hourly 1 Insurancejournall 32 32 Supreme Court Supports Employers’ Religious Rights in Contraception, Teacher Employment Thu, 09 Jul 2020 06:06:40 +0000 2020-07-09 05:00:45

religious exempThe U.S. Supreme Court struck two blows for religious rights, including a decision that upholds Trump administration rules giving employers a broad right to refuse to offer birth control through their health plans.

The justices also gave religious organizations a bigger exemption from discrimination suits, throwing out bias claims filed by two teachers who were fired by Roman Catholic grade schools in California. Both decisions Wednesday were 7-2 as Justices Stephen Breyer and Elena Kagan joined the court’s five conservatives in the majority.

The decisions came as the court said it will issue the last opinions of its term on Thursday. Those will include rulings on subpoenas for President Donald Trump’s financial records from Congress and a New York grand jury.

The contraceptive ruling, which stems from an Obamacare guideline requiring health plans to include free coverage, lets Trump’s administration expand a narrower religious exemption offered under President Barack Obama. Critics say the new exemption could leave tens of thousands of women without ready access to birth control.

The ruling focused more on federal administrative law than religion. Writing for the court, Justice Clarence Thomas said the Affordable Care Act gives administrators “broad discretion” to carve out religious and moral exemptions. The law itself doesn’t explicitly mention birth control, instead requiring cost-free “preventive care and screenings” and leaving it to a federal agency to determine what’s included.

“It was Congress, not the departments, that declined to expressly require contraceptive coverage in the ACA itself,” Thomas wrote.

Ginsburg Dissent

Dissenting Justice Ruth Bader Ginsburg pointed to a government estimate that between 70,500 and 126,400 women would immediately lose access to free contraception. “This court leaves women workers to fend for themselves, to seek contraceptive coverage from sources other than their employer’s insurer, and, absent another available source of funding, to pay for contraceptive services out of their own pockets,” Ginsburg wrote.

The ruling leaves open the possibility the exemption could be narrowed if Democrat Joe Biden wins the presidential election and revises the policy.

The Trump administration issued its rules in November 2018. The new policy expands the types of employers who can claim religious exemptions to include publicly traded companies for the first time, and also applies it to universities in their student health plans. The rules also permit opt-outs on moral grounds.

In a concurring opinion, Kagan said lower courts could still consider arguments that the administration didn’t engage in “reasoned decisionmaking,” as required under federal law. She pointed to a “mismatch between the scope of the religious exemption and the problem the agencies set out to address.”

Little Sisters

The Little Sisters of the Poor, an order of Catholic nuns, helped defend the Trump policy. The Little Sisters took part even though a separate court ruling means the contraceptive mandate couldn’t be enforced against the group no matter how the justices ruled.

“Under today’s ruling, we are free to focus fully on our ministry to the elderly poor and dying,” Loraine Marie Maguire, mother superior of the Little Sisters, told reporters.

Reproductive-rights advocates decried the decision.

“Today’s ruling has given bosses the power to dictate how their employees can and cannot use their health insurance — allowing them to intrude into their employees’ private decisions based on whatever personal beliefs their employers happen to hold,” said Lourdes Rivera, senior vice president at the Center for Reproductive Rights.

The Supreme Court stopped short of saying that the U.S. Religious Freedom Restoration Act requires the type of sweeping exemption the administration put in place. Pennsylvania and New Jersey challenged the Trump policy.

The Supreme Court’s conservative wing has been broadly supportive of religious rights in recent years. Last week a divided court bolstered the school-choice movement by ruling that states must include religious schools in programs that offer taxpayer subsidies for private education.

Teaching Religion

In the employment case, the court said the Constitution gives schools broad power to hire and fire employees who teach religion. The decision extends earlier Supreme Court rulings that shielded religious organizations from employment-discrimination claims by ministers.

“This is a big day for religious liberty, a big day for the ability of religious institutions to carry out their missions and help people,” said Eric Rassbach, a lawyer at the Becket Fund for Religious Liberty, which represented the schools in the employment case, as well as the Little Sisters.

The ruling comes weeks after the court ruled that gay and transgender workers can sue for job discrimination under federal law. The latest decision underscores an important qualification to that ruling, giving faith-based groups a broader license to ignore civil rights laws of all types, including LGBT protections.

“While the Supreme Court has made it clear that it is against the law to fire someone for being LGBTQ, today they made it easier for religiously affiliated employers to discriminate — including against LGBTQ people,” said James Esseks, director of the American Civil Liberties Union’s LGBT & HIV Project.

Religious Duties

Agnes Morrissey-Berru was seeking to sue Our Lady of Guadalupe School in Los Angeles for age discrimination. The other suit accused St. James School in Torrance, California, of discriminating on the basis of disability when it fired Kristen Biel after she had undergone chemotherapy. Biel died of breast cancer in June, but her husband continued to press the case.

The schools said both women had important religious duties, including teaching classes about Catholicism, leading prayers and participating in mass with the students.

“There is abundant record evidence that they both performed vital religious duties,” Justice Samuel Alito wrote for the court. “As elementary school teachers responsible for providing instruction in all subjects, including religion, they were the members of the school staff who were entrusted most directly with the responsibility of educating their students in the faith.”

In dissent, Justice Sonia Sotomayor said the two teachers “taught primarily secular subjects, lacked substantial religious titles and training, and were not even required to be Catholic.”

She added, “The court is not only wrong on the facts, but its error also risks upending anti-discrimination protections for many employees of religious entities.”

The San Francisco-based 9th U.S. Circuit Court of Appeals had let the employment suits go forward.

Six justices — the five conservatives, plus Sotomayor — are either practicing Catholics or were educated in Catholic schools.

The birth-control cases are Little Sisters of the Poor v. Pennsylvania, 19-431, and Trump v. Pennsylvania, 19-454. The employment cases are Our Lady of Guadalupe School v. Morrissey-Berru, 19-267, and St. James School v. Biel, 19-348.

Copyright 2020 Bloomberg.


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Worker Injured at Construction Site Can Sue Under Massachusetts’ Statute of Limitations Thu, 09 Jul 2020 04:00:32 +0000 2020-07-08 14:14:56

A worker injured at a Massachusetts construction site can sue under the state’s three-year statute of limitations despite being a resident of Connecticut, a Massachusetts Appeals Court has ruled. The decision reverses a lower court’s ruling that Connecticut’s two-year statute of limitations for negligence actions instead applies to the situation.

The case arose after defendant Dimeo Construction Company, a Rhode Island corporation, was contracted to perform construction work at Grafton High School in Grafton, Mass. Dimeo then contracted with defendant Shepard Steel Co. Inc., a Connecticut construction company, to perform decking work on the project.

Shepard contracted with defendant Champion Steel LLC, also a Connecticut company, for steel construction work on the decking, and plaintiff and Connecticut resident Stanford Dulaire, doing business as Connecticut Reliable Welding LLC, entered into a contract with Champion to perform metal work on the project. Dulaire employed Connecticut resident James Doughty to perform decking work at the construction site as well.

On May 17, 2011, Doughty was wearing a retractable life line manufactured by German company IKAR GmbH and marketed by defendant Ultra-Safe Inc., an Arizona corporation, while working on a platform at the construction site. The life line, provided to Doughty by Champion, Shepard and Dimeo, failed and caused Doughty to fall 18 feet to the ground, sustaining serious injuries.

Plaintiff Pacific Insurance Company Ltd., the workers’ compensation insurer for Doughty’s employer Dulaire, had paid out workers’ compensation to Doughty under Connecticut’s workers’ compensation statute pursuant to its policy.

Under Connecticut law, an employee who receives workers’ compensation payments can bring a suit if “any injury for which compensation is payable…has been sustained under circumstances creating in a person other than [the] employer…a legal liability to pay damages for the injury,” according to the Massachusetts Appeals Court opinion document.

Connecticut’s statute also creates a right of action so that employers obligated to pay workers’ compensation, like Dulaire, can sue third parties for recovery of any amounts paid or for which they are obligated to pay, the opinion document added.

In the lawsuit, plaintiffs Pacific and Dulaire contended that Doughty’s injuries were caused by the negligence of defendants Champion, Shepard and Dimeo in supplying, inspecting, maintaining and using the life line. With this in mind, the plaintiffs contended the defendants were liable for all payments Pacific had made and would be obligated to make to Doughty.

The defendants argued, however, that the plaintiffs’ rights were created by Connecticut statute so the Connecticut statute of limitations for negligence should apply. Connecticut’s two-year statute of limitations for negligence actions had expired in 2013 before the plaintiffs filed the claims on May 16, 2014.

The defendants further contended that Massachusetts should have no substantial interest in the suit because “the only connection that Massachusetts has to this case is that the incident happened to occur there,” according to the opinion document.

The Massachusetts Appeals Court disagreed with this argument, however, reasoning that it was enforcing the norms of Massachusetts tort law regarding conduct at a worksite in the state.

“Here, the issue that the plaintiffs seek to litigate in order to hold the defendants liable is precisely the tort liability of the defendants for their alleged negligence in Massachusetts,” Massachusetts Associate Justice Peter J. Rubin wrote in his opinion. “Massachusetts has a substantial interest in seeing this claim litigated for the full period allowed by our statute of limitations.”

The Massachusetts Appeals Court found that because the injury was caused by the alleged negligence of the defendants in performing work and providing equipment and safety planning at the construction site in Massachusetts, the state’s three-year statute of limitations applies despite the Connecticut residency of the injured worker.

“The parties were not visitors passing through our state,” Rubin wrote in his opinion. “Rather, this case involves allegedly tortious conduct doing injury to a worker at a worksite at a Massachusetts high school by defendants contracted to do work there over the course of months. Although the plaintiffs and the injured party reside in Connecticut, and the defendants are out-of-state companies, their contacts with the commonwealth were not transitory.”

The case is Pacific Insurance Company Ltd. & another vs. Champion Steel LLC & others.

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Parents Sue After Son Fatally Shot in Alaska Thu, 09 Jul 2020 01:54:46 +0000 2020-07-08 14:53:39

The parents of a man who died after being shot by a Juneau police officer in December sued the officer, city and others, alleging wrongful death and civil rights violations.

Kevin and Virginia Stephens, parents of Kelly Michael Stephens, want to know what happened, attorneys said, adding they so far have been unable to get copies of video and audio recordings surrounding the shooting.

Attorney Ben Crittenden said it would be “simple and reasonable” for the Juneau Police Department to release the recordings. “The video does not lie,” he said. “It would tell us exactly what happened.”

The Office of Special Prosecutions, within the state Department of Law, declined to bring criminal charges against the officer involved in the Dec. 29 shooting, James Esbenshade. The office’s report, from Chief Assistant Attorney General Jack McKenna, cited audio and video recordings and witness interviews among the materials included in the investigation.

McKenna concluded Esbenshade was “legally justified in his use of deadly force in order to defend himself from the threat of serious physical injury posed by Mr. Stephens.”

Attorney John E. Sweeney, also representing Stephens’ parents, said a decision by authorities not to prosecute does not shield an officer from civil liability.

The lawsuit names as defendants Esbenshade; Juneau Police Chief Ed Mercer; the city; and others who were not identified. It seeks unspecified damages.

Messages requesting comment were sent to police spokespeople and left for an attorney who represented Esbenshade during the shooting investigation. The city had no comment, public information officer Lisa Phu said.

McKenna’s report said police were called to a supermarket late on Dec. 28 for a report of a man threatening a patron. The man was later identified as Stephens, the report said. Responding officers did not find him, and Esbenshade interviewed a man who said he was threatened, the report states.

After midnight, police received a call of a shot fired, with the caller saying there was yelling and someone attempting to get into her apartment, the report says. Esbenshade responded.

The report says a man identified as Stephens yelled expletives at Esbenshade and said to the officer, “I will kill you,” as Esbenshade backed up. The report said Esbenshade had ordered Stephens to stop and said Esbenshade was retreating when he raised his gun.

McKenna’s report cited footage he said showed Stephens walking toward where Esbenshade was and swinging a leash and chain.

The report said Esbenshade declined to be interviewed about the shooting.

Sweeney said people who were with Stephens that night “paint a different picture.” He said Stephens was not a threat to Esbenshade.

Copyright 2020 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Arkansas Bar Linked to Virus Cases Forced to Close Wed, 08 Jul 2020 23:48:28 +0000 2020-07-08 16:00:16

Arkansas health officials have shut down a Little Rock bar after tracing it to a cluster of coronavirus cases and finding the business wasn’t complying with virus safety measures.

The Department of Health on Saturday ordered Brewski’s Pub and Grub to cease operations until it appears before a state panel. According to the order, state Alcohol Beverage Control officials inspected the bar last week after cases were traced back to it.

It is the first bar Arkansas has closed for not complying with coronavirus safety rules. Gov. Asa Hutchinson has opposed closing down bars again as the state grapples with a surge of cases and has instead said the state can target ones that aren’t following the safety rules.

“We expect compliance with our public health guidelines, and if someone is not complying with those, then if they are not willing to enforce it they cannot stay in operation,” Hutchinson said Monday.

Inspectors found the bar exceeded a two-thirds capacity limit and wasn’t ensuring patrons were social distancing or wearing masks. The Health Department is aware of at least seven people who went to the bar within 14 days before being diagnosed with the virus, a spokeswoman said.

Under the health department rules, bar patrons must wear masks when social distancing isn’t possible until their food or drink is served. According to the order, a manager told an ABC agent: “We can’t make them wear masks. We wish they would, but we can’t do much.”

There was no answer at the bar on July 6, but is said in a Facebook post that three of its employees tested positive.

The Health Department on Monday said at least 24,253 people have tested positive for the virus, an increase of 439 new confirmed cases since Sunday. The department said 6,127 of those cases are considered active, meaning they don’t include people who have died or recovered.

Five more people have died from COVID-19, bringing the state’s fatalities to 292. The state’s hospitalizations rose by 12 to 337.

The true number of cases in Arkansas is likely higher because many people have not been tested, and studies suggest people can be infected and not feel sick.

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Updated Minnesota Driver’s Manual Provides Guidance for Legal Gun Owners Wed, 08 Jul 2020 21:42:51 +0000 2020-07-08 16:11:48

Minnesota public safety officials updated the state’s driver’s manual to give motorists who are legally carrying firearms some guidance on what to do if they are stopped by police, including instructions to keep both hands on the steering wheel while telling the officer of the gun’s location.

The change was announced on July 6, four years after Philando Castile was fatally shot during a traffic stop after he told an officer he had a gun. His mother, Valerie Castile, pushed for the change two years ago when she saw Arizona had updated its driver’s manual to include the additional information.

After phone calls to other states and discussion with both community members and law enforcement, she called Monday’s announcement “bittersweet.”

“We’re talking about 1,461 days that I have not seen my son, have not touched my son, have not kissed my son, and it brings delight that the Department of Public Safety has re-updated the drivers manual because this little tidbit is very, very important,” she said. “That bit of information can save lots of lives.”

Minnesota’s driver’s manual had already provided direction for motorists stopped by law enforcement, but the new language details what someone should or should not do when informing an officer they are legally carrying a firearm.

The manual now instructs drivers to keep their hands on the steering wheel during a traffic stop as the officer approaches. Drivers should tell the officer they have a gun, its location within the car while keeping their hands on the steering wheel, and refrain from reaching around the car without telling the officer first, the updated manual says.

The change also describes what motorists should expect from police. Drivers should expect officers to identify themselves as law enforcement and give the reason for the stop. In addition to asking for a driver’s license and registration, officers may ask to take possession of the gun for the duration of the traffic stop, according to the manual.

“If we all know what to expect during a traffic stop that’s going to be a lot better for all of us, but we should all expect respect,” said Booker Hodges, DPS assistant commissioner of law enforcement. “The officer has to respect a citizen’s right to legally carry a firearm (and) the citizen has to respect the officer’s right to perform his or her job when conducting a traffic stop.”

Philando Castile, a 32-year-old elementary school cafeteria worker, was shot on July 6, 2016, after he told then-St. Anthony police officer Jeronimo Yanez that he had a gun. Authorities later discovered Castile had a permit for the firearm. Castile’s girlfriend, who was in the car with her then-4-year-old daughter, livestreamed the immediate aftermath of the shooting on Facebook.

Yanez was charged with manslaughter and other counts but was acquitted in 2017, sparking days of protests. Valerie Castile reached a nearly $3 million settlement with the city of St. Anthony less than two weeks later.

The working group on deadly police encounters, co-chaired by Minnesota Attorney General Keith Ellison and state DPS commissioner John Harrington, released the 28 recommendations in February. The recommendations include increasing community engagement by law enforcement, expanding state funding for law enforcement training, and creating an independent unit within the Bureau of Criminal Apprehension to investigate cases of severe or deadly use of force, among others.

“I pray that Minnesota can be a model for other states … and do these things. We all can do better,” Valerie Castile said. “We’ve had these wonderful working groups with all these great recommendations, now it’s time to implement them.”

Mohamed Ibrahim is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues.

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Lawsuit Accuses Georgia Sheriff of Failing to Protect Inmates from Coronavirus Wed, 08 Jul 2020 19:36:30 +0000 2020-07-08 16:56:00

Overcrowded cells, a lack of personal protective equipment and limited access to cleaning and sanitation supplies are putting people in a Georgia jail at risk of exposure to the coronavirus outbreak, a federal lawsuit says.

Clayton County Sheriff Victor Hill and several of his high-ranking subordinates are ignoring the known risks of the virus, exposing people in their custody to a highly infectious disease that can be fatal, the lawsuit says. Lawyers with the Southern Center for Human Rights and the American Civil Liberties Union of Georgia say they filed the lawsuit July 1 on behalf of four people held in the Clayton County jail.

Hill did not respond Thursday to phone messages seeking comment on the lawsuit.

The lawsuit accuses the jail administrators of failing to take reasonable steps to ensure effective social distancing and failing to provide sufficient sanitation or adequate protective equipment. They also haven’t adequately identified and responded to positive cases or provided inmates with information on how to avoid infection, it says.

The conditions violate the inmates’ constitutional protection against cruel and unusual punishment and rights to due process, the lawsuit says.

The jail, which is about 20 miles (32 kilometers) south of Atlanta, was 96% full, with 1,847 inmates as of June 4, and cells meant to house two people often housed three or four, the lawsuit says. There isn’t enough space for social distancing in the cells or common areas.

Forty-five people at the jail – 32 inmates and 13 employees – had tested positive for the coronavirus by June 11, with 16 new positive tests in the first eight days of June alone, the lawsuit says.

People experiencing symptoms of COVID-19, the disease caused by the virus, often remain in overcrowded cells for days, the lawsuit says. When they are moved out, the cells aren’t cleaned before new inmates are moved in.

Because they don’t have enough cleaning supplies, some inmates use bits of toilet paper and the 4 fluid ounces (12 centiliters) of liquid soap they are allotted each week for personal hygiene to wipe down their cells, the lawsuit says.

The frequent turnover in the jail population and the rotation of officers makes it easier for the virus to travel into and out of the jail, the lawsuit says.

“Due to the constant churn of people in and out of local jails, the health of a community during a pandemic is only as strong as the health of those detained in its jail,” Cody Cutting, a fellow at the Southern Center, said in a news release.

Two of the people who filed the lawsuit are serving 12-month sentences, one for a misdemeanor and the other for a probation violation. The other two are awaiting trial and can’t afford to pay their bail amounts. They range in age from 58 to 72, and all four have underlying health conditions that make them more susceptible to the coronavirus, the lawsuit says.

The lawsuit seeks class-action status. It asks a judge to order the release or transfer of some inmates, including those who are medically vulnerable. It also seeks improved jail conditions through social distancing measures and the provision of personal protective equipment.

Copyright 2020 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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81,000 Arizona Businesses Get Coronavirus Loans Wed, 08 Jul 2020 17:30:33 +0000 2020-07-08 14:56:41

Just over 81,000 Arizona small businesses were approved for loans worth $8.6 billion under a government program meant to keep people employed during the COVID-19 pandemic, according to data released Monday by the federal government.

The Arizona companies reported saving more than 1 million jobs as a result of the government program, which set off a frenzy among small businesses scrambling to qualify for limited funds during the economic shutdown in the spring.

Among the 11,000 firms approved for at least $150,000 in loans, several sectors dominated, restaurants, medical, dental and law offices and construction contractors. More than 150 religious organizations, mainly churches, and nearly as many schools also were approved for loans.

The list also includes nonprofit and cultural organizations, newspapers, tribal casinos and hotels.

For the larger $150,00-plus loans, the government reported the names and addresses of companies receiving them, but loan values were reported only as a wide range; exact figures weren’t disclosed. Little was disclosed about smaller loans.

Unsurprisingly, Phoenix led Arizona cities for large loans, with 3,338 businesses receiving them. Arizona’s largest city was followed by Scottsdale, Tucson, Mesa, Tempe, Chandler, Gilbert and Glendale.

North Scottsdale’s 85260 led the zip codes, with 464 businesses getting big loans worth between $175 million and $416 million. Tempe’s 85281, home to Arizona State University, was second, with 308 businesses approved for between $107 million and $258 million.

Fifty-eight businesses received the largest loans of $5 million to $10 million.

The loans can be forgiven if businesses mostly use the money to continue paying workers. The program initially was set to expire June 30 but was extended last week to Aug. 8, with $132 billion still available.

The Paycheck Protection Program helps smaller businesses stay open and keep people employed amid the coronavirus pandemic. Under the PPP, the government is backing $659 billion in low-interest business loans that will be forgiven if employers use the money on payroll, rent and similar expenses. Companies typically must have fewer than 500 workers to qualify.

About $130 billion was unclaimed as the application deadline closed June 30. With money still available, Congress voted to extend the program just as it was expiring, setting a new date of Aug. 8.

The public may never know the identity of more than 80% of the nearly 5 million beneficiaries to date because the administration has refused to release details on loans under $150,000 _ the vast majority of borrowers. That secrecy spurred an open-records lawsuit by a group of news organizations, including The Associated Press.

Still, the release of the data is the most complete look at the program’s recipients so far.

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Allstate to Buy National General for $4 Billion, Growing Auto, Independent Agent Business Wed, 08 Jul 2020 15:24:18 +0000 2020-07-08 11:57:19

U.S. Insurer Allstate Corp. said on Tuesday it will buy National General Holdings Corp. for about $4 billion in cash, scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims.

National General’s shareholders will receive $32 per share in cash and closing dividends of $2.50 per share for each share held. This would imply a total deal value of $3.92 billion and a premium of about 69% to National General’s Tuesday close, Reuters calculations showed.

New York-based National General lists automobile insurance as its chief business, and offers services in personal auto, recreational vehicle, motorcycle and commercial auto businesses.

Allstate, which is also one of the largest U.S. auto insurers, said in April that it would return more than $600 million in premiums to customers as many Americans were driving about 40% to 55% less due to stay-at-home orders.

Allstate said the deal is expected to close in early 2021 and will add to its adjusted earnings per share and return-on-equity beginning the first year.

National General Profile
National General, headquartered in New York City, has a network of approximately 42,300 independent agents. National General provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products. Auto insurance represents approximately 60% of premium with a significant presence in the non-standard auto market. National General generated operating return on average equity in excess of 16% in 2019, with net income of $314 million, up 79% from the prior year. Gross premiums written in 2019 were $5.6 billion.

How Allstate Views Acquisition

  • Advances strategy to increase market share in personal property-liability with market share increasing by over 1 percentage point
  • Allstate becomes a top 5 personal lines carrier in the independent agent distribution channel by combining Encompass and Allstate’s Independent Agent businesses with National General. Only four insurers have more than 5% market share. The next 10 insurers combined have less than 30% market share. Allstate’s market share in 2019 was less than 1.5%, including both Encompass and Allstate Independent Agents.
  • National General also has a strong position in higher risk or “non-standard” auto insurance
  • Additional IA expansion opportunities exist in standard auto and homeowners insurance

The deal has been approved by National General’s board, the U.S. insurer said, adding that it included a breakup fee of $132.5 million.

“Acquiring National General accelerates Allstate’s strategy to increase market share in personal property-liability and significantly expands our independent agent distribution,” Allstate Chief Executive Officer Tom Wilson said.

The deal comes as the coronavirus crisis caused asset stress among insurers in North America, with ratings agencies assessing that the adverse impact of the pandemic for insurers will take some time to manifest.

Ardea Partners was the financial adviser to Allstate, while J.P. Morgan Securities LLC advised National General.

(Reporting by Shubham Kalia and Kanishka Singh in Bengaluru, Editing by Sherry Jacob-Phillips)

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Lloyd’s Market Assn. Launches Delegated Authority Group to Set Future Business Model Wed, 08 Jul 2020 13:18:24 +0000 2020-07-08 10:57:10

The Lloyd’s Market Association (LMA) has launched a Delegated Authority Committee (DAC) to inform and guide the evolution of this important aspect of Lloyd’s underwriting, distribution and claims.

Delegated authority business currently accounts for roughly 40% of the market’s annual gross written premium, but to date has not had a dedicated, strategic market committee to give a focus to the future business model of delegated business, said the LMA in a statement.

The group’s objective is to establish a customer-centric vision and future business model for delegated authorities for all disciplines, from customers and clients to Lloyd’s carriers. The committee aims to establish what are the distribution chain and market needs in order to be successful and ensure “that Lloyd’s is the market of choice.”

The committee will begin by:

  • engaging with customers, clients (coverholders and brokers) and the market,
  • establishing a business model for the future that leverages the ongoing initiatives and tackles distribution challenges and acquisition costs to the benefit of managing agents, coverholders, brokers and customers,
  • influencing the increased regulatory attention to distribution, oversight, costs, performance and service quality.

“The market must consider its broad DA strategy carefully, through the lens of our coverholders, brokers and customers,” said Nigel Roberts (head of Distribution at Aegis), who has been appointed chair of the DAC.

“This includes developing the DA business model that can deliver front-end change, enabling us to be flexible in how we source and service our clients’ and customers’ needs, whilst delivering bespoke and innovative products and solutions for distributing business itself. Furthermore, this should be achieved from a lower cost base,” he added.

Lee Elliston (claims director at the LMA) said: “Delegated authority business and the related client and customer base is critical to the Lloyd’s market. Establishing key changes to our business model, in direct collaboration with our value chain, will ensure that benefits can be delivered to all parties, reducing acquisition and expense costs, streamlining the sourcing and servicing of business to remove friction, and supporting the growth and innovation of our market and our clients.”

The committee comprises a multi-disciplined group of senior specialists from the Lloyd’s managing agency community, ensuring that all disciplines of the insurance product are connected and united behind the evolution required within DA. It reports directly to the LMA Board and has established feedback loops to Lloyd’s and the London International Insurance Brokers Association (LIIBA).

Source: Lloyd’s Market Association

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What ‘Follow the Fortunes’ Means for COVID-19 Reinsurance Claims Wed, 08 Jul 2020 11:12:08 +0000 2020-07-08 08:03:57

Illustrating some of the specific reinsurance coverage questions that are arising from COVID-19 business shutdowns, Ernesto Palomo, a partner in Locke Lord’s Business Litigation and Arbitration group, presented several scenarios during the Casualty Actuarial Society Seminar on Reinsurance in June.

In each hypothetical scenario, he assumed that primary insurers paid business interruption claims under policies that did not have virus exclusions, and ceded losses to their reinsurers under reinsurance contracts with “follow-the-fortunes” language.

“The follow-the-fortunes doctrine doesn’t override the other terms and conditions of the reinsurance contract.”
– Ernesto Palomo, Locke Lorde

“It is important to note that as a reinsurer, we have contractual terms and conditions, such as retentions, limits, event definitions, hours clauses and other coverage provisions that will apply to this ongoing event. Thus, we do not simply follow the fortunes. It will be very fact-specific.”
– Juan Andrade, Everest Re

“To be perfectly honest, it’s unclear how a pandemic can fit into an hours clause.”
– Kevin O’Donnell, RenaissanceRe

“Is the reinsurer bound?” he asked repeatedly, polling a virtual audience.

While a high percentage of actuaries casting their votes said the reinsurers were bound to reinsure claims under one scenario, there were real differences of opinion in two others—one in which the primary carrier paid the claim to maintain a key client relationship, and another where the reinsurance contract included a pandemic exclusion.

Before laying out the specifics of each of the hypotheticals, Palomo said there are three factors that determine whether a claim paid by a ceding company is going to be covered by a reinsurance agreement: the terms of the reinsurance contract; the terms of the underlying policy; applicable laws. Focusing on the reinsurance agreement, the lawyer highlighted two typical provisions: follow-the-fortunes and follow-the-settlements clauses.

Ernesto Palomo

Boiling down the language of a follow-the-fortunes clause in simple words, Palomo said it means that “the cedent and the reinsurer generally must share the same fate”—good or bad—”as long as the ceding company did not act in bad faith, or as long as they didn’t do anything to expand their liability” in paying a claim. “The reinsurer must accept whatever misfortunes give rise to the claims under the cedent’s original policies,” he said, noting that the notion of fortuity is at the core of the follow-the-fortunes doctrine. (Editor’s Note: Fortuity is often defined as meaning that risks insured are neither expected nor intended.)

The follow-the-settlements concept is “essentially the follow-the-fortunes provision in the context of settlements,” Palomo said as the typical language was written out on a slide presented during the virtual session. “Reinsurers agree to follow all settlements (excluding without prejudice and ex gratia payments) made by original insurers arising out of and in connection with the original insurance,” the slide said, while Palomo explained that the clause is intended to prevent a reinsurer from “second-guessing or attempting to relitigate arguably covered claim payments made by the ceding company.”

What a typical aggregation of losses clause says:

The term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “loss occurrence” shall be limited to all individual losses sustained by the Companies occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event…”

“The doctrine essentially holds that a reinsurer is bound by the cedent’s decisions regarding claims handling and payment of settlement claims, so long as the cedent acted in a business-like manner and that its decision was reasonable and made in good faith,” he said. That means “a reinsurer cannot relitigate a cedent’s good faith decision to waive defenses to which it may have been entitled,” he added.

In summary, the two clauses together “bind the reinsurer to all good-faith decisions by the ceding company, including underwriting, litigation, settlements, unless either 1) the cedent engaged in fraud, collusion or bad faith, 2) the losses are not covered under either their reinsurance contract or the underlying policy.”

Going on to present three hypothetical COVID-19 business interruption claims scenarios, Palomo first imagined that a primary carrier wrote a policy which didn’t contain a virus exclusion but that, in settling the claim, the carrier “determined that the virus was present on or near the covered premises and caused ‘physical loss or damage.’” That condition needed to be met for the insurer to cover loss of business income from an insured’s suspension of operations under the terms of the underlying policy. Assuming the presence of a follow-the-fortunes clause in the reinsurance contract, Palomo asked the actuaries to weigh in as to whether the reinsurer is on the hook as well.

This was the only example of three he presented in which an overwhelming majority of the actuaries listening to the talk (91 percent) said that the reinsurer would be bound in this scenario.

Palomo wasn’t so sure. “In my view, there’s no right or wrong answer,” he said, noting that more facts would be needed to get to an appropriate determination. “The answer may turn on what did the cedent do to investigate and determine that there was virus on the covered property or in it. Was there any evidence that the virus was present on the property, or did the cedent merely cave to avoid fighting the issue? Is there any case law in the jurisdiction that suggests that a virus can cause physical damage within the meaning of the insurance policy?”

“Obviously, reinsurers (are) going to want to review the cedent’s files to make sure that the settlement was reached in a proper and businesslike manner,” he said.

Changing the hypothetical so that the insurer, still issuing policies without virus exclusions, actually just decided to pay the claim, relinquishing its coverage defenses in response to pressure from state insurance department regulators and because of the carrier’s desire to maintain its relationship with a valued insured, Palomo asked again whether the reinsurer was bound to follow the fortunes.

Although 56 percent of the actuaries responding to an online poll said they believed the reinsurer would be bound in this situation, “based on the loaded facts,” Palomo agreed with the other 44 percent. “This seems like an ex-gratia payment,” he said. Some reinsurance agreements provide coverage for ex-gratia payments, he said, noting that if that had been true in the scenario presented, then the reinsurer would likely be bound.

Offering details of a final hypothetical, Palomo asked seminar attendees to imagine that New York state enacts legislation voiding all virus exclusions and requiring retroactive coverage of all business interruption losses from COVID-19. In this case, the insurer pays a claim and cedes losses under a reinsurance contract that has both a follow-the-fortunes clause and a pandemic exclusion.

Here, just under half the attendees thought the reinsurer would be bound to provide reinsurance coverage, but Palomo said the presence of the pandemic exclusion in the reinsurance agreement is the controlling factor. “It doesn’t matter how honorably the cedent acted or what really happened to them, the reinsurer would likely be entitled to enforce the terms of its contract to deny the claim.”

“The follow-the-fortunes doctrine doesn’t override the other terms and conditions of the reinsurance contract,” he said, suggesting that the result would only be different if the legislation also applied to reinsurance contracts.

“None of the proposed legislation that I have seen would seem to apply to reinsurers,” he added.

One actuary protested during the question-and-answer portion of the session: “If pandemic exclusions are overturned by states, why would there be a difference between an insurer’s exclusion and a reinsurer’s exclusion on the same risk?”

Palomo repeated his assessment that if the legislation doesn’t say it applies specifically to reinsurers, the reinsurer “would have a decent argument” that it doesn’t have to follow. He also said that reinsurers would likely fare better than insurers on any constitutional challenges they might bring if faced with such legislation.

He noted that courts examining the question of whether it’s unfair to rewrite or interfere with direct insurance contracts would “potentially conclude that the insurance industry is so heavily regulated that there’s no expectation that the legislature would not rewrite the contract in this fashion (if) it would be good for society.” But reinsurers are generally subject to less regulation. So, if reinsurers were to challenge that legislation on constitutional grounds, Palomo believes they “would have a better chance of prevailing” in arguing that they relied on the contract language and that the state should not interfere with vested rights under their contracts.

Earlier in the session, Palomo reviewed some of the insurance policy language being battled over in courts and talked specifically about the legislative attempts to retroactively rewrite coverage into primary policies. He noted that there is a provision found in many insurance policies called a “conformity to state law” provision that is getting some attention in arguments for coverage of COVID business interruption claims. The typical “conformity” provision essentially says that if something in the policy conflicts with state law, then the state law will apply. Palomo continued that if a state were to enact a law forcing insurers to pay business interruption losses, the “conformity” provision will likely be used against insurer arguments that such a state law is unconstitutional.

“Policyholders will argue that there’s nothing unconstitutional about enforcing an insurer’s promise to abide by state law,” he said.

What Reinsurers Are Saying

How are scenarios like the ones Palomo presented playing out in the real world?

Juan Andrade

At least one reinsurance executive, Juan Andrade, the chief executive officer of Everest Re, said determination of reinsurance payouts are specific to the facts of each reinsurance arrangement. “It is important to note that as a reinsurer, we have contractual terms and conditions, such as retentions, limits, event definitions, hours clauses and other coverage provisions that will apply to this ongoing event. Thus, we do not simply follow the fortunes. It will be very fact-specific,” he said during a first-quarter 2020 earning conference call in early May, as he described estimate of incurred-but-not-reported losses for the company’s reinsurance book.

Kevin O’Donnell

RenaissanceRe CEO Kevin O’Donnell, also describing his company’s loss estimates, said, “We rely on our cedents when they tell us there is minimal exposure” to business interruption, outside of the instances where “certain insurers have provided a limited number of manuscripted communicable disease extensions.”

For insurers that haven’t sold specific extensions, “we rely on our cedents’ interpretation of their contracts and the discussions they are having with their insureds about the coverage they provided. We are not really involved in that dialogue because that’s between the insured and the insurer. What we’re involved with is how does our treaty protect the cedent,” O’Donnell continued. “And we’re relying on their advice that they don’t believe they have BI (business interruption) exposure from COVID-19 under the policies they have sold.”

Like Andrade, O’Donnell said reinsurance contract wording is key. “There are coverages that are excluded (in) the governing documents between us and an insured compared to an insured and an insurer…We’ll be disciplined in making sure that losses ceded to us (are) in compliance with our governing documents,” he said.

Aggregation of Losses

One other specific reinsurance clause that Palomo highlighted during the CAS meeting is the aggregation clause typically found in excess-of-loss treaties that allows a ceding insurer to combine multiple loss occurrences so that only one retention needs to be satisfied—as long as the loss occurrences are linked to some common event or cause. He illustrated the concept with the sample language (shown in the accompanying textbox) allowing the cedent to combine claims arising out of one event that occurs in one state or in neighboring states and within a 168-day time frame.

“We saw in the context of asbestos, pollution and health hazard claims that insureds and cedents employed many creative arguments to describe a covered event. In the (COVID) situation, I would predict certainly that cedents are going to use stay-at-home orders as the event that will allow the cedent to combine losses out of one event,” he said.

Going on to offer an example of an insurer attempting to present claims for insureds in Illinois and California as one occurrence on the basis of stay-at-home orders from governors of those states, he suggested that such an aggregation won’t fly with reinsurers. “Those states are not next to each other,” which was a requirement in the language of the clause he read to the group. The cedent “probably could combine all Illinois losses as one event or all California losses could be combined as one event, but not both,” he said.

An actuary attending the session asked Palomo whether cedents can get around hours clauses in reinsurance contracts. (An hours clause limits the time that loss arising from a specific peril, such as a hurricane or windstorm, can be aggregated into one occurrence if the loss was sustained during a long-lasting event—typically to 72 or 168 hours, according to a description on the Locke Lorde website.)

Palomo responded: “I haven’t seen any of these claims presented to the reinsurers yet, and I agree with you that that’s going to be a significant issue in terms of whether this is going to be covered or not. It’s really going to be a case-by-case determination as to whether the reinsurer will be able to deny them because they didn’t satisfy the hours clause.”

Similar questions came up during reinsurer’s earnings conference calls for the first quarter. O’Donnell said that “the hours clause is an imperfect way to measure when something like a hurricane starts and stops so that a primary company can aggregate losses in a consistent way for cessions to a property-cat (treaty). To be perfectly honest, it’s unclear how a pandemic can fit into an hours clause,” he said.

He added, “When we think about how to approach a claim, we always approach it constructively—but we approach it on a bespoke basis with each cedent…”

“You have to consider the entire agreement, and the hours clause is one complicated element,” he said.

An analyst asked Everest Re’s Andrade whether a second COVID-19 wave later this year would constitute a second event, and wanted to know when the reinsurer would “close the book on the losses associated with (the) first lockdown.”

“This is where you come back to my comments that this is not a follow-the-fortunes event for Everest,” Andrade said. “When you start looking at event definitions, including hours clauses, limiting duration of an event, outlining the radius or the contiguous environment that’s involved, this is where all of that is going to come into play for us,” he said.

John Doucette

John Doucette, CEO of the Reinsurance Division at Everest, attempted to quell analyst’s fears about multiple rounds of losses hitting the reinsurer’s books. “It’s important to point out that not only is the event going on, but we have rolling inception dates that are happening all the time,” said Doucette, pointing to April 1, May 1, June 1 and July 1 renewal dates.

That means “we are pursuing terms and conditions that help narrow or exclude pandemic risk” on all these dates, he said, suggesting a ripple effect. “That will help mitigate, limit or exclude the potential losses going forward. And we’re certainly not alone doing that. While we are leading the charge, many other reinsurers are doing it as well, and I think that will help narrow whatever the scope of this turns out to be,” he said.

This article first was published in Insurance Journal’s sister publication, Carrier Management.


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