IRMI Update—Issue #50
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
October 8, 2002
In This Issue
Colleague,
We recently launched the online version of our 22,000-page risk management
and insurance reference library, and I can't help but brag a bit about it. The
culmination of more than 2 years hard work by our IT and production staff, IRMI
Online gives subscribers instant access to the IRMI library from any computer
with Internet access. It features a user-friendly table of contents and a very
powerful search engine. We think it represents the future of our business, and
I invite you to check it out sometime. You can view the table of contents, search
the library, and peruse the "How To Use" section without being a subscriber.
While you can't view the contents of our subscription products without subscribing,
there is one publication in IRMI Online that is free to anyone, the Contractor's Guide to Owner Controlled Insurance
Programs in the Construction Risk Management section of IRMI Online.
Prepared by the OCIP Task Force of the AGC of America, it gives guidance on
39 issues contractors should consider when accepting coverage through a wrap-up
or controlled insurance program.
You can visit IRMI Online anytime.
Have a great day!
Jack
Jack P. Gibson
President
IRMI
If you like IRMI Update, consider subscribing to our other complimentary
e-zines. D&O Compass will help you deal with the tight directors and officers
liability insurance market, and The Electronic Owl will help you get your money's
worth from our subscription publications. To learn more or to register, see IRMI Update.
Rescission: Can It Be Prevented?— An insurer
may rescind its policy in the event of material misrepresentation or concealment
of facts by the insured. The policy may be rescinded even after a loss that
would otherwise be covered by the policy. Misrepresentation is false statement
of a fact by the insured. Concealment is the neglect to reveal a fact that the
insured knows and ought to communicate to the insurer. Misrepresentation or
concealment is material if it affects the underwriting decision of the insurer.
For example, the premium would have been higher had the insurer been aware of
the true and complete facts.
In most cases, rescission is based on materially misrepresented facts in
the policy application or underwriting information provided by the insured or
its broker. Materiality is determined within the context of probable and reasonable
influence on the insurer by the false fact. Consequently, if the insurer's underwriting
decision is not affected, then the falsity cannot be deemed material. Furthermore,
the insurer cannot reasonably rely on a fact received from the insured alone
if it is aware of a conflicting fact. Also, there must be clear evidence to
demonstrate that the insurer did rely on materially false facts when making
its underwriting decision.
State insurance codes and legal precedents also have an impact on the insurer's
decision-making process concerning rescission. For example, the California insurance
code allows policy rescission even in cases of unintentional misrepresentation
or unintentional concealment, and it provides that materiality is to be determined
solely by the probable and reasonable influence of the facts on the insurer.
Also, case law precedent prevents insurers from relying solely on representations
contained in the policy application or underwriting information if an inspection
of the insured’s property is conducted.
Rescission could be avoided if the insured and its broker take thorough measures
to ensure the accuracy and completeness of the underwriting information. Also,
insurers should clarify any conflicting or ambiguous underwriting information
before coverage is bound.
By: Akos Swierkiewicz, CPCU
President, IRCOS
E-mail: soka@earthlink.net
www.jurispro.com/user/ircos
Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
give you credit for your contribution.
There are now 340 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
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The Environmental
Risks of Residential Construction—Has the emergence of mold as
an insurance issue caused risk managers to lose sight of "other" environmental
exposures associated with residential work? Jeff Slivka provides a list
of other risk management concerns.
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Can Workers Agree
To Waive WC Rights in Arbitration and Waiver Agreements?—Jim
Pocius provides his response to the question: Would the Federal Arbitration
Act supersede any workers compensation state law and allow these cases to
be arbitrated?
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Should Insurance
Policies Have "No Hair?"—In insurance disputes, courts must determine
the parties' intent in entering into the contract. Here, Kenneth Wollner
discusses why some courts ignore extrinsic evidence when interpreting insurance
policies.
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The Singapore
Insurance Market—Jorn Kristensen and Ang Yew Lee examine Singapore's
political, legal, monetary, banking, tax, economic, and regulatory structures,
and discuss the future for life and non-life insurance there.
The IRMI Hard Market Survival
Guide 2002—IRMI Research Analysts provide 20 tips on how to survive
the current hard property and casualty insurance market.
Be Sure To Beat the October
18 Conference Fee Increase—On October 18 the registration fee for
the 22nd IRMI Construction Risk Conference will be raised. Take advantage of
the best price by registering today. Four all-day seminars and 20 sessions and
workshops will be held at the Conference in San Diego November 11-14. Register
online.
For details about all the sessions and the presenters, see the agenda. To register,
just complete the online registration
form or call (800) 827-4242.
In IRMI Update 49, we asked readers whether
they thought workers are provided with appropriate workers compensation information
from their employers. Also, are we doing enough as an industry to explain the
coverage. Below are some of the responses we received.
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I thought your information about the lack of knowledge regarding workers
compensation benefits was interesting. I also agree with the Hartford recommendations
for bringing employees up to speed on the benefits available and having
a positive proactive return to work policy. I would recommend that employees
be educated about the benefits they are eligible for as well. This can be
done prior to or at the time of an injury depending on an employer's preference:
Explain the benefit payment schedule and structure. Although benefits
vary somewhat by state, the benefits may be less than the employee's pre-injury
wage. If this is the case, and there is no tax withheld, injured workers
should be educated so they don't feel penalized. It is also important to
let them know that this is not the employer's decision; it is established
by the Division of Insurance. This may prevent an employee from retaining
an attorney.
If the benefit payment schedule differs from the employee's current pay
schedule, let them know. In the construction industry, many workers are
paid on a weekly basis. Workers comp benefits may arrive every 2 weeks.
In many cases, a claims adjuster will educate injured workers about benefits,
but it doesn't hurt for the employer to relay this message as well. It is
critical that the message be consistent to avoid confusion!
—Trish Ennis, CSP, ARM, Assistant Vice President,
Loss Control & Safety, HRH/Linden
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Very interesting about work comp. I agree we as an industry have done
a very poor job getting out information. One of the very simple risk management
techniques we have done is to put together a simple claims procedure for
our clients. In the claims procedure we have told our clients to contact
an injured employee within 24 hours if they do not return to work. It is
not rocket science stuff, but I truly believe that if an employee is injured,
they are afraid. A simple phone call from the employer can keep them away
from attorneys and improve the moral of the injured worker. Thank you for
reminding us.
—No name provided
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Actually my experience is the reverse of the survey. I find construction
workers acutely aware of WC coverage and benefits, and many knowledgeable
of how to "work the system." I did want to relate one point of concern:
Return to work policies are fine, and can be a useful tool. However, twice
recently I have encountered cases where a worker was returned to work, restricted
to light duty, only to have a foreman convince him that he could do "regular"
duty for a short period of time. Each of these cases caused additional injury
and complicated the claim. It seems some lower level supervisors need to
be made aware that light duty means only light duty.
—Robert R. Miles, Senior Vice President, Acordia,
New York
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The industry has not just failed to get the word out on workers compensation.
The industry has woefully failed to explain to the public what insurance
is, how insurance policies are written, what insurance policies cover ("you're
covered for everything" or "you have the best insurance available"), how
claims are handled, and what to expect if you are involved in a casualty.
It has totally failed to advise the public of the expense incurred by each
worker as a result of insurance fraud.
In addition, the insurance industry has failed to advise the people that
work for it the true meaning of the covenant of good faith and fair dealing
and that it is the obligation of the claims department to pay every claim
that is owed under the contract and none of the claims that are not owed.
—Barry Zalma, Esq., CFE, Barry Zalma, Inc., Culver
City, California
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When it comes to educating the public, the insurance industry gets an
"F" as in Fail. The industry should be forced to go to summer school to
make up for its failing grade!
The truth is if the public were insurance educated, we would all be paying
less for our insurance! I'm not sure our industry carrier leaders would
be happy about that. For one thing, insurance fraud would be drastically
reduced and all the excess premium we (personal insureds and commercial/corporate
insureds) are paying for fraud would be monumentally reduced. I find it
amusing when I read how many billions of dollars are paid for "fraud" in
insurance. If the figure used is $20 billion, then you know the real number
is probably $50 billion. If the figure used is $50 billion, then the real
number is probably $100 billion.
If the public were insurance educated, they would be able to intelligently
"shop" their insurance and get the best value for their insurance dollar.
If the selling arms of the insurance industry truly educated their clients
(I use the term client, 90 percent of the sellers call clients customers—there
is a difference), they—the sellers—would have to be smarter, more educated.
It's a sad commentary how poorly educated the public is when it comes to
insurance. Of course in this way the insurance buyer is totally at the mercy
of the seller and sadly, the great majority of sellers are more interested
in their commissions to be received than they are in bringing the best value
to their victims, I mean customers. Thanks for listening.
—David J. Skolsky, CPCU, Insurance Analysts & Consultants,
Avondale Estates, Georgia
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I fail to get the point. Workers know of workers compensation and exploit
it to the hilt. Your information must be from the dark ages.
—Doug Bicknell
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