Mass. lawmakers, agents uncomfortable with Patrick auto plan

Massachusetts lawmakers and agents are anxious about the Patrick Administration's decision to try competitive rating in auto insurance in 2008 but have stopped short of asking Insurance Commissioner Nonnie Burnes to scrap her plan to move to a more competitive system.

At a hearing in Boston last month, several senators from the Financial Services Committee, along with independent agents and at least one insurer did, however, advise Burnes not to permit insurers to use socioeconomic factors such as occupation, education or credit score -- or proxies for those variables -- in their underwriting or pricing in her final regulations.

Sen. Michael Knapik, R- Westfield, repeatedly reminded Burnes and others that elected officials hear from motorists when things go wrong with the auto insurance system and questioned the wisdom of making the change.

"Why are we here? It's a pretty good environment. Rates are moving in the right direction," Knapik reasoned. "There will be winners and losers. You are upsetting the applecart. Is it worth moving forward in such an unknown way? I get the calls and I go on the ballot."

"This is the worst economic policy for urban residents," said Sen. Diane Wilkerson, D-Boston, vice chair.

Burnes suggested that the time is right to make a switch precisely because there is no crisis and because indications are that rates should be going down based on insurers' declining claims and costs. She tried to reassure the elected politicians that most of their constituents who are good drivers would fare better under the new system. The "losers" would be bad drivers who should pay more, she added.

"There will be constant monitoring," Burnes promised lawmakers.

Control on tiering
Burnes indicated that she would impose various controls, including a cap on increases in rates for urban drivers and a ban against insurers using various tiers or subsidiaries to offer preferred rates to certain drivers. "It's already in homeowners and we don't want it in auto market," Burnes said of the tiered-pricing scheme.

While Burnes said she would be "very cautious" about permitting the use of socioeconomic factors, several witnesses questioned why she would even keep the possibility alive.

Sen. Mark Montigny, D- New Bedford, was among the lawmakers uncomfortable with allowing insurers to use socioeconomic factors. He urged Burnes to identify the factors insurers may use rather than listing factors they may not use. "They [insurers] will find ways to game the system," claimed Montigny, arguing that insurers would find proxies such as amount of insurance purchased for any prohibited variables to "get to the same place."

Wilkerson noted that the current system "does not allow consumers to be harmed by socioeconomic factors" but suggested the new one could.

Frank Mancini, Massachusetts Association of Insurance Agents, urged that rates be based upon driving record "as much as possible."

Glenn Kaplan, representing Attorney General Martha Coakley, also opposing the use of socioeconomic factors, warned that the commissioner's authority could be limited once the state goes into a competitive system. He also suggested that in the future insurers could gain more control by opposing her authority to reject their use of certain criteria. He urged lawmakers to put legislative protections in place.

John Kittel of Arbella Insurance, one of the state's auto writers that has opposed competitive rating, told lawmakers that current laws would not keep insurers from using socioeconomic factors. "Companies can compete without using socioeconomic factors and with transparency," Kittel testified.

Burnes appeared sympathetic but said she needed more time to make a final decision. She said she was "skeptical" about a recent Federal Trade Commission report that insurers say supports their use of credit scores.

Wilkerson and others criticized rates based on territories as unfair. Even Burnes has said she would like to de-emphasize territories.

But John Baldini, representing domestic insurer Liberty Mutual which writes eight percent of the state's auto market, warned that restricting insurers' use of other rating variables such as credit scores could backfire. "By taking away predictive rating factors, you rely more on territorial rating," he warned.

Mancini's agent group has opposed competitive rating in the past but Mancini said his group recognizes the commissioner's authority to make this change. Now, he said, the challenge is to provide meaningful consumer education so that drivers can take advantage of the new system.

Sen. Stephen J. Buoniconti, D-Springfield, committee chairman, vowed the committee would hold additional hearings after Burnes releases her proposed regulations.

"We can decide to step in and change the rules," Buoniconti advised.

Maine rejects expanded snowplow contractor's

Businesses hired to remove snow from town roads do not owe a general duty of care to people who ride on them, the Maine Supreme Judicial Court has ruled.

In denying the appeal of a man whose wife was killed in a collision more than three years ago on a slippery road in Glenburn, the justices refused to expand the common law duty of plowing contractors and broaden their potential liability.

"Our common law reflects the widely held public acceptance of heavy snowfall and difficult driving as facts of life in Maine," Chief Justice Leigh Saufley wrote in the opinion in which she noted that Maine normally gets about 85 inches of snow a year.

The appeal was brought by Steven Alexander, who argued that a Superior Court erred in determining that plowing contractor Philip Mitchell did not owe a duty of care to Michelle Alexander, who died in the Dec. 16, 2003, collision with a van on Pushaw Road.

Steven Alexander, who also sued the owner of the van and its driver, claimed that Mitchell negligently failed to clear and maintain the road, which was covered with snow and slush at the time of the crash.

The law court upheld the lower court ruling that Mitchell owed no legal duty to Michelle Alexander and that he was not liable because the slippery road was created by severe weather conditions and not by his failure to plow.

Mitchell's contractual obligation, the court noted, was to the town, which is immune from liability through legislative action.

N.J. firm tests deer device

A device using a flashing light and a shrill alarm is being tested on a stretch of road near Fort Dix, N.J., to see whether it can deter deer.

The devices, installed by Mount Laurel company JAFA Technologies Inc., are activated when the unit senses headlights on an approaching vehicle up to 150 yards away. Then the device emits a shrill noise and a blue strobe light is flashed. The combination of the light and the sound is designed to keep deer away from the road when a vehicle is approaching.

"What makes this device so much more effective than others is that this can detect headlights before a deer sees them and gets mesmerized," Ed Mulka, project manager for JAFA, told the Courier-Post newspaper of Cherry Hill.

The devices are being installed on Saylors Pond Road near Fort Dix. Local officials say this stretch of road sees about 60 to 80 accidents a year involving deer.

JAFA is paying for the cost of installing the 38 devices, which usually cost about $150 a piece.

The devices are made in Austria by IPTE and are being tested for the first time in the United States, JAFA President Carol Bozarth told the newspaper.

N.Y. flu exercise in Sept.

The New York State Insurance Department said that it expects all insurance companies in the state to participate in an exercise this month to evaluate the readiness of the nation's financial services to survive a pandemic flu outbreak.

"There has never before been an exercise of this scope in the United States and all sectors of the financial services industry will be represented. It is important that all insurance companies, both large and small organizations alike, register to participate," said Deputy Superintendent Louis W. Pietroluongo.

Designed to simulate a global influenza outbreak, the exercise is being sponsored by the U.S. Department of the Treasury and major trade organizations.

The simulation will be conducted over a three-week period beginning Sept. 24. Participants will access a secure Web site to respond to various such scenarios.

Pa. judge facing insurance fraud charges won't run

Suspended Pennsylvania Superior Court Judge Michael T. Joyce pleaded not guilty to federal charges of mail fraud and money laundering and withdrew his name from the ballot for re-election. His decision to retire came after a grand jury indicted him for allegedly bilking two insurance companies out of $440,000. He continues to receive his state salary of $165,342 a year plus benefits.

The developments left leaders of Pennsylvania's Republican and Democratic parties scrambling to nominate candidates to compete for Joyce's seat in the November election. He was one of eight appellate judges seeking voter approval for an additional 10-year term in a yes-or-no "retention" vote.

Joyce, 58, a Republican who was elected to the state appellate bench in 1997, vowed to mount "a vigorous legal defense" against the criminal charges.

Joyce did not attend the initial court hearing in Erie, but his lawyer, David Ridge, entered the plea before Chief U.S. Magistrate Judge Susan Paradise Baxter.

The criminal case against Joyce stems from an August 2001 traffic accident that he said left him in such pain that he was unable to exercise or play golf for more than a year. Prosecutors say the judge's car was rear-ended by another vehicle at about 5 mph, and that he faked his injuries to cash in on the insurance money.

The indictment says Joyce was playing 18-hole rounds on courses as far away as Jamaica, going scuba diving and inline skating, and working out at a local gym. He used the insurance money to buy a motorcycle and make down payments on a house and plane, it said.

The mail fraud charges are the most serious, each carrying a maximum prison term of 20 years.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

R.I. audit of Beacon Mutual confirms past unfair practices

Beacon Mutual Insurance Co. will pay a $2.5 million fine, refund $7 million to policyholders and continue to implement various management changes as the result of a long-awaited audit by Rhode Island officials of the state's biggest workers compensation company.

The 312-page market conduct exam report confirms previous allegations of weak controls, favoritism in pricing, questionable golf perks and entertainment expenditures and inappropriate relationships under former Beacon Mutual managers and directors.

The examination was begun in September 2005 by the Department of Business Regulation, before various whistleblower allegations against the company became public in 2006, and was intensified after an internal report raised questions about management and Gov. Donald Carcieri called for a major overhaul of the company.

The company has since replaced its chief executive officer, Joseph Solomon, and named a new chief operating officer. Carcieri has named several new people to the board of directors.

In Beacon Mutual's response to the DBR report, current CEO James Rosati promised the company would work with DBR to implement the recommendations. He maintained that Beacon has already taken "significant steps" to change with its own 75-point improvement plan, and has already put in place 24 of the report's 79 recommendations.

He reported that the controversy has already cost the company more than $7.5 million in direct expenses.

The DBR said its examination "disclosed a corporate culture at Beacon that developed over a number of years and culminated in weak management and controls; inappropriate producer, agency and vendor relationships; favoritism and bias in pricing; inappropriate and lavish spending as well as a disregard for the regulatory process and Beacon's corporate mission and purpose."

The report, signed by Sharon K. Gordon, CPA, CFE, chief insurance examiner, and Elizabeth Kelleher Dwyer, legal counsel, offered a summary of its findings:

Certain employees related to board members and other favored employers were granted significant and unsupported discounts, leading to lower-priced workers' compensation insurance compared to similarly situated insureds.

Charitable contributions were made to institutions -- a hospital and a library in two instances -- related to board members and senior management with little or no evidence supporting the efficacy of the contribution.

Commissions were paid to select agents despite the fact that they did not meet required minimum loss ratio performance thresholds.

Favored agents, golf trips
Management, favored agents and select insureds enjoyed golf trips and other perks constituting "unsuitable expenditures for a non-profit independent public corporation" serving as a the market of last resort to Rhode Island employers, the report claims.

More specifically, in its review of Beacon's pricing practices, the auditors found that the insurer "systematically violated" state law requiring it to follow approved forms and rates. These violations included failing to adopt approved loss costs, utilizing unapproved safety groups, employing incorrect experience modification factors, misclassifying payroll exposure and failing to file net of commissions pricing.

On at least two occasions, according to the audit, Beacon offered coverage through its out-of-state fronting arrangements to out-of-state payroll exposure to employers with no connection to a Rhode Island employer.

The auditors say they found 13 instances where accounts on a "VIP list" got preferential pricing.

There were "numerous" instances where accounts showed very large credits on the Rhode Island portion in order to offset higher out-of-state policy prices.

Over a period of three years (2002 to 2005), the insurer failed to obtain the state's consent for its pricing as required on more than 2,800 policies, the report says.

Much of the criticism of expenditures centers on former CEO Solomon. From 2003 to 2005, the report alleges that the company spent $1.1 million on golf-related events, attire and travel for Solomon and David Clark, former underwriting chief. These included memberships in golf clubs to entertain select agents and clients; $34,000 for a golf trip to Scotland; close to $70,000 for other trips to Florida, California and others states. At least $20,000 was paid to support the PGA career of one agent's son, the report says.

Clark has pleaded not guilty to state charges of conspiracy and insurance fraud.

In addition to his salary, former CEO Solomon enjoyed a leased corporate car, at a cost to the company of $50,000. At one point, Solomon authorized Beacon to buy the leased Lexus and then sell it to him, at a price $11,363 less than Beacon paid for it, the report claims.

Solomon also is reported to have paid $340,000 for use of a luxury box and game tickets at Gillette Stadium, home of the New England Patriots.

Beacon paid $2.5 million in unearned agency commissions that it was not obligated to pay because the agents did not meet their loss ratio terms. The report says that many of the same agents paid the unearned commissions were ones with clients who received favorable pricing.

While promising to implement its recommendations, Beacon Mutual took exception to some of the language and comments in the report that it said were more speculative than factual.

For example, the report infers that Beacon's market share increased due to improper pricing practices and opposition to competition. But Beacon says these inferences do not appropriately consider other factors behind growth. Ten of 22 state funds had similar growth between 1995 and 2005, Beacon notes.

Ohio Casualty officially joins the Liberty Mutual agency family

With $7.3 billion in premium, Liberty Mutual Agency Markets becomes the largest regional independent agency force

Boston-based insurance giant Liberty Mutual Group is now the largest regional provider of property and casualty insurance distributed through independent agents in the country.

Th insurer finalized its acquisition of Ohio Casualty Corp. on Aug. 24. The company then announced a realignment of its $5.9 billion net premium regional agency company organization to make room for Ohio Casualty and its $1.4 billion in premium.

The transaction was valued at $2.7 billion. Liberty Mutual said it funded the purchase with cash on hand and short-term debt. The value per share was $44.00.

The move strengthened Liberty Mutual's agency presence in Midwestern and Atlantic states, complementing its position in other regions.

"The addition of Ohio Casualty enhances the scale and geographic diversification of our Agency Markets business unit while strengthening the overall Liberty Mutual Group," said Edmund F. Kelly, Liberty Mutual Group chairman, president and chief executive officer, in a statement.

Based on 2006 results compiled by A.M. Best Co., the combined $7.3 billion in net written premium makes Liberty Mutual's Agency Market division the largest regional provider of property and casualty products sold through independent agents in the country.

"We are today a stronger family of regional and specialty companies that remains committed to local decision-making, strong agency relationships and ease of doing business that have made us the company of choice for independent agents; and we add Ohio Casualty's talented and dedicated employees across the country to our already strong team," said Gary Gregg, president of Liberty Mutual Agency Markets, a division that includes eight insurers selling through independent agents and brokers.

The companies in Liberty Mutual Agency Markets have more than 6,800 employees and approximately 6,500 appointed agencies. Ohio Casualty, which has approximately 2,100 employees and operations in 48 states, has approximately 3,400 appointed agencies.

Gregg said there would be some employee layoffs in the future but that the company hoped to retain most of the agents.

Ohio Casualty Corp. is the holding company of The Ohio Casualty Insurance Co. and five property and casualty insurance companies (Ohio Casualty, West American, American Fire and Casualty Co., Ohio Security, Avomark and Ohio Casualty of New Jersey, Inc.).

Gregg said the acquisition has resulted in a realignment of Agency Markets in order to take advantage of Ohio Casualty's strength in Midwest and Atlantic states. Ohio Casualty will retain its name and cover Delaware, Kentucky, Maryland, Ohio, Pennsylvania, Virginia, D.C. and West Virginia.

The overall new line-up of Agency Markets companies is:

America First Insurance: Arkansas, Kansas, Louisiana, Missouri, Oklahoma and Texas

Indiana Insurance: Illinois, Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin

Montgomery Insurance: Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee

Ohio Casualty: Delaware, Kentucky, Maryland, Ohio, Pennsylvania, Virginia, Washington, D.C., and West Virginia

Peerless Insurance: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont

The three additional agency companies -- Colorado Casualty (Arizona, Colorado, Nevada, New Mexico, Utah and Wyoming), Golden Eagle (California) and Liberty Northwest (Alaska, Idaho, Montana, Oregon and Washington) will continue to operate in their current territories, Also, the specialty lines operations will be combined into the Specialty Products Group.

The operations of the former Hawkeye-Security Insurance are being split between America First and Indiana Insurance. Hawkeye-Security sold personal lines in Iowa, Kansas, Missouri, and Wisconsin and commercial insurance in Iowa, Kansas, Minnesota, Missouri, Nebraska, and Wisconsin.

Liberty Mutual Agency Markets also includes Wausau Insurance, a national commercial property and casualty insurer; and Summit Holding Southeast, Inc., workers compensation insurer in the Southeast.

Dan Carmichael, president and chief executive of Ohio Casualty, will stay on as an executive consultant to Gregg and will help with implementation of the acquisition.

David Lancaster has been named president and chief executive officer of Indiana Insurance, and Michael Winner has been named president and chief executive officer of Ohio Casualty. John Busby has been named senior vice president and chief operating officer, Specialty Products Group.

What's ahead for Liberty Mutual, Ohio Casualty independent agents?

For agents, the Liberty Mutual Agency Markets acquisition of Ohio Casualty promises to be a matter of addition, not subtraction. For the most part, Ohio Casualty's 3,400 agents will join with and not replace or be replaced by Liberty Mutual's existing 6,500 independent agents, according to Gary Gregg, president of Liberty Mutual Agency Markets. "The idea is not to subtract but add," said Gregg.

This is possible because Ohio Casualty's strength in the Midwest and Atlantic regions largely complements rather than overlaps with the territories where Liberty Mutual Agency Markets regional carriers write. There is "very little overlap" among agencies for the two companies -- less than 15 percent by location, Gregg maintains. "Companies and agencies are always reevaluating their relationships but this is not about cutting, it's about growing," he insisted.

The marriage presents opportunities to "bring more products to more agents," Gregg says. For example, Ohio Casualty is known for its artisan contractors program, which will now be available to more agents across the country.

Growth looks promising in specialty lines including surety. Where Ohio Casualty tended to focus on small contractors and Liberty Mutual focused on larger contractors, now agents will be able to go after both.

The regional companies' managers plan to move quickly to communicate with agencies and start re-licensing procedures. Over the next six to 24 months, the company hopes to complete the transition to common technology system, upon which so many products depend.

The merger strengthens his Agency Markets' national footprint and promises to bring new growth as well. But even this major addition may not be enough. "This doesn't mean we are done with acquisitions," Gregg added.

Boston cat modeling pioneer Clark forms consulting firm

Catastrophe modeling pioneer and founder of the firm AIR, Karen Clark, has formed a new firm -- Karen Clark & Co. -- to help companies use catastrophe models in important risk management decisions. The Boston firm will offer consulting services, independent reviews of company internal processes, and executive briefings to provide senior management and their boards with specifics they need to know about using cat models to manage risk.

Clark developed the first hurricane catastrophe model and in 1987 founded the first catastrophe modeling company, Applied Insurance Research, which subsequently became AIR Worldwide Corp. after acquisition by Insurance Services Office in 2002.

"It's become clear the industry needs an independent company with the expertise to inform CEOs and their boards on what they need to know about catastrophe risk and catastrophe models and to help them ensure the integrity of their internal risk assessment and management processes," said Clark. "As rating agencies, regulators and other stakeholders take an increasingly active interest in how companies are assessing and managing risk, independent information and reviews of those processes are becoming much more important."

Hold the kibble: fat cats and dogs cost pet insurer $14 million

A fat cat, or dog, may result in fat bills for owners and the pets' insurer.

Veterinary Pet Insurance (VPI), the largest provider of pet health insurance, recently reviewed policyholder data to find that it reimbursed more than $14 million last year for claims with links to pet obesity. Claims related to obesity represented 7 percent of all medical claims submitted to VPI.

"Pet owners may think a few extra pounds is acceptable for their pet, but no one finds extra veterinary bills very appealing," said Dr. Carol McConnell, vice president and chief veterinary officer for VPI. "Obesity in pets should be taken seriously by all pet owners. It shortens pets' lives and dramatically increases health risks."

Veterinarians have long known that obesity is as harmful to pets as it is to humans. Obesity raises the risk of arthritis, intervertebral disc disease, spondylosis and cruciate ligament rupture. There are other diseases also correlated with obesity, such as diabetes, hypertension, asthma, hepatitis and lipomas. Besides adversely affecting pets' quality and length of life, any one of these diseases could require costly treatment. In 2006, the average claimed cost of treatment for these medical conditions was $832, up from $713 in 2005 and $702 in 2004.

"Pet obesity begins with excessive kindness," said McConnell. "Food is the primary way some pet owners demonstrate love to their pet. When dog treats and table scraps become signs of affection or behavioral tools, it becomes difficult to effectively regulate a pet's diet."

Studies show that between 25 and 40 percent of American pets are overweight. Ideal weight varies among breeds; smaller pets can tip the scales with only two to three pounds extra. A simple way to determine if a pet is overweight is to feel its spine and chest. The backbone and ribs should be easy to distinguish and void of excess fat.

In order to lose weight, pets must reduce caloric intake while increasing physical activity. For pet owners, this means regulating or eliminating snacks and treats and finding a fun way to remain active with their pets. A veterinarian can identify a pet's ideal weight and customize a diet and exercise plan.

"Most pet owners think of pet insurance in the context of routine care and the unexpected; they fail to think of how it protects against illnesses like those associated with obesity," said McConnell. He said VPI reimburses for conditions potentially related to obesity and offers options for routine care coverage.

"The good news for pet caregivers is that obesity can be prevented and the excess costs avoided," he added.

Commerce Insurance, Commerce Banc end spat, seek to partner

The Commerce Group Inc., the property/casualty insurer based in Webster, Mass., and Commerce Banc Insurance Services of Cherry Hill, N.J., have decided to explore partnership opportunities in various states and to resolve the trademark suit pending in federal court in Massachusetts.

Under the agreement, the two companies will explore opportunities through Commerce Insurance Co. and its affiliates to offer personal and small commercial lines of business through Commerce Banc Insurance Services in Massachusetts and New Jersey, with the potential for arrangements in other states in the future.

In addition, Commerce Banc Insurance Services has agreed to refrain from using the "Commerce" name in Massachusetts for insurance-related services. In turn, The Commerce Group Inc. has agreed that it will not operate under the name The Commerce Insurance Co. in certain Mid-Atlantic states, including New Jersey, where it will use its other insurance operating subsidiaries, including American Commerce Insurance Co.

"We are very excited about the potential of a partnership with Commerce Banc Insurance Services in Massachusetts, New Jersey, and beyond" said Gerald Fels, president of The Commerce Group Inc.

"Developing successful partnerships with customer-focused underwriters is a key to our continuing success," said Commerce Banc Insurance Services' Chairman George Norcross.

The two said specific details regarding the future business arrangement have not yet been finalized.

The Commerce Group Inc.'s property and casualty insurance subsidiaries include The Commerce Insurance Co. and Citation Insurance Co. in Massachusetts, Commerce West Insurance Co. in California, American Commerce Insurance Co. in Ohio, and State-Wide Insurance Co. in New York.

Commerce Banc Insurance Services is the nation's 23rd largest insurance brokerage firm with an annual premium volume exceeding $1 billion and a network of 13 offices.

Mass. court rules excess insurers not bound by primary settlements

An insurer of a so-called "follow form" excess policy is not bound by the decision of a primary insurer to settle a claim, the Massachusetts Supreme Judicial Court has ruled.

The state's highest court ruled that an excess insurer is entitled to make its own independent decision, even if the language of the excess policy follows the form of the primary policy.

In Allmerica Financial Corporation & others vs. Certain Underwriters at Lloyd's London, decided on Aug. 6, the state's high court ruled that underwriters at Lloyd's of London who issued an excess policy for Allmerica were not as a matter law required to go along with the August, 2001 decision of Allmerica and its primary insurer, Columbia Casualty, to settle a class action relating to the sale of certain life insurance products.

The follow form language in the Lloyd's underwriters' policy provided that, "[t]his Policy is subject to the same conditions, limitations and other terms ... as are contained in or may be added to the Policy(ies) of the Primary Insurer(s)." The Lloyd's policy had a liability limit of $10 million, which "shall attach only when the Underlying Insurer [Columbia Casualty] shall have paid or have been held liable to pay, the full amount of the Underlying Limit(s)."

The underlying limit on the Columbia Casualty policy was $20 million, payable after a self-insured retention amount of $2.5 million. Thus the Lloyd's underwriters' obligation to pay a covered loss would attach after Allmerica had paid its retention amount and Columbia Casualty had paid its $20 million.

The total cost of the class action and settlement was $39.4 million, including attorney's fees, relief management and relief payments to class members.

After Allmerica settled the class action lawsuit, it sought indemnification from its insurers. Columbia Casualty had participated in the settlement negotiations and agreed to pay its policy's limit into the settlement fund.

When Allmerica sought indemnification for the settlement beyond the primary policy's limits, the underwriters at Lloyd's denied coverage. Allmerica then filed suit seeking a declaration of coverage. A judge in the Superior Court granted a summary judgment in favor of the Lloyd's underwriters. Allmerica appealed, and the Supreme Judicial Court assumed the case from the Appeals Court on its own.

According to the high court decision, an insurance program involving a primary policy and one or more excess policies divides risk into distinct units and insures each unit individually: "The individual insurers do not (absent a specific provision) act as coinsurers of the entirety of the risk. Rather, each insurer contracts with the insured individually to cover a particular portion of the risk. Use of a follow form clause is advantageous in crafting such an insurance program because it makes an excess policy a carbon copy of the primary policy, with the only differences being the names of the parties and the coverage limitations. Follow form language thus allows an insured to have coverage for the same set of potential losses (and with the same set of exceptions) in each layer of the insurance program. The language does not, however, bind the various insurers to a form of joint liability should coverage at a prior layer fail. The layer of risk each insurer covers is defined and distinct."

The court rejected Allmerica's argument that Lloyd's adopted not only the language that Columbia Casualty used to describe the coverage and exclusions but also the "intent of the parties" and thus was bound by Columbia's interpretations of the policy, including any settlements Columbia made.

"An excess carrier's intent to incorporate the same words used in a separate agreement between the primary insurer and the insured does not imply an intent by the excess carrier to accept decisions made by the primary carrier about the extent of its obligations under its own agreement. By adopting the form of words used by Columbia Casualty, the underwriters did not also cede to it the right to make decisions about the underwriters' obligation to perform in various circumstances," the decision states.

The court noted that coupled with the right of the excess insurer to make its own decision is the risk that it might ultimately face greater liability.

N.J. hazing case triggers liability concerns for campus safety officials

College administrators across the nation are likely to pay close attention to the indictment of two Rider University officials in a case involving a student who died after drinking during a suspected hazing.

The case could trigger changes in how schools deal with campus safety issues, including student drinking, experts say, because prosecutors are holding administrators more accountable for hazing.

"I think every dean of students around the country is examining their liability insurance and following the case closely, because it's so peculiar," said Norm Pollard, dean of students at Alfred University in New York.

Earlier this month, a grand jury indicted two Rider administrators and three Rider students with aggravated hazing in connection with the drinking death of a fraternity pledge.

The pledge, freshman Gary DeVercelly Jr., 18, of Long Beach, Calif., had a blood-alcohol level of 0.426 percent when he was pronounced dead March 30, one day after a special party at the on-campus fraternity house, authorities said. At the party, pledges drank large quantities of hard liquor with fraternity brothers, some of the pledges consuming entire bottles in less than an hour, according to prosecutors.

A grand jury indicted Anthony Campbell, 52, Rider's dean of students; Ada Badgley, 31, the university's director of Greek life; Adriano DiDonato, 22, a student who was also the residence director of the Phi Kappa Tau fraternity house; Dominic Olsen, 21, pledge master of Spring 2007 Phi Kappa Tau pledge class; and Michael J. Torney, 21, the chapter president.

Prosecutor Joseph Bocchini Jr. has declined to elaborate on why the two administrators are facing charges even though they weren't present at the party, but he noted that facilitating is included in the criminal code that defines hazing.

If convicted, Campbell, Badgley and the three students each face a maximum penalty of 18 months in prison and a fine of up to $10,000. All five have pleaded not guilty.

"I'm not aware of any set of facts and circumstances that could remotely serve as a basis for a conviction of a crime," said Campbell's lawyer, Rocco Cipparone Jr.

Experts familiar with college hazing cases wonder whether Bocchini's case against the administrators will stick. But even if the charges are dropped, they say the threat of indictments will heighten fears among college administrators.

Peter Lake, director of Stetson University's Center for Excellence in Higher Education Law and Policy, said school administrators are likely to take a much harder stance on student drinking, and some might even take steps to completely disassociate their colleges from Greek organizations and athletic teams where hazing and other offenses might occur.

"I think it will push people to more extreme solutions. I think it's going to interfere with the best intentions of administrators," Lake said.

Alfred University banned fraternities and sororities in 2002 after a hazing-related death. "That death prompted our university to end Greek life," he said.

Hank Nuwer, an associate professor of journalism at Franklin College in Franklin, Ind., said the Rider case points to the need for administrators to create more specific policies on hazing.

"It's making deans and administrators who ordinarily wouldn't be thinking about this issue thinking about it intently," said Nuwer, who's studied campus hazing for years. "These administrators haven't come up with a really good policy, other than trying to absolve themselves with legal responsibility."

At the University of Massachusetts-Amherst, student affairs Vice Chancellor Michael Gargano said he meets with local police once a week about cases involving students. He also said incoming freshmen are required to take an online course in alcohol abuse.

"A death on a college campus is something every senior administrator hopes and prays isn't going to happen on their campus. Hoping and praying is one thing. But you need effective programming too," Gargano said.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Sept. 11 responders' insurance fund under fire

Two senators want to know why a $1 billion Sept. 11 insurance fund appropriated by Congress to help ailing ground zero workers has not been used to compensate those exposed to harmful substances.

Senate Judiciary Chairman Patrick Leahy, D-Vt., and the committee's ranking Republican, Arlen Specter of Pennsylvania, said in a letter to the insurance company overseeing the Sept. 11 health-related claims that they are considering convening a hearing in September.

"Reports that the World Trade Center Captive Insurance Co. has spent hundreds of thousands of dollars on salaries on administrators and over $45 million to private law firms are troubling," the letter said.

The two also said they have concerns about the $74 million that reportedly has been spent on overhead costs and legal bills.

Michael A. Cardozo, New York City's corporation counsel, said in a statement that Captive Insurance Co. is an insurance company, not a compensation fund. He said the city has urged Congress to create a compensation fund for injured workers. "Instead, Congress created an insurance company, and the Captive Insurance Co. is obligated to defend all claims that have a reasonable and valid defense," Cardozo said. "We would strongly welcome Congress, as we have repeatedly urged, to allocate funds for compensation without the need for litigation."

Attorneys representing thousands who became ill after working to clean up the site have gone to court to demand the insurance company spend money on their health care.

Credit scoring use still an issue for officials, consumer groups

The recent release in late July of a long-awaited Federal Trade Commission (FTC) study on the use of credit scoring for underwriting and rating purposes did nothing to put to rest the controversy over its use by insurance companies. The study did support insurers' contention that there is a valid connection between how well a person manages finances and how likely it is that they will be involved in an accident. However, instead of putting out the fire, it seeemd to energize some officials and consumer groups.

Consumer groups cry foul play
Consumer groups were quick to express their concerns with the results of the study. The Center for Economic Justice and other consumer groups cried foul play, saying that African American and Hispanic minorities were indeed negatively affected by the use of credit scoring, whether intentionally or not. Birny Birnbaum, executive director for the Center for Economic Justice, said that a study by the Missouri Department of Insurance found that a consumer's race was the factor most predictive of an insurance score. And despite relying on data hand picked by insurers, the recent report by the Federal Trade Commission found that insurance scoring was a proxy for race.

"Insurance scoring represents 21st century redlining and the end of insurance as insurers develop ever more-detailed rating schemes based more on economic status, credit scores, education, occupation, prior liability limits -- than the risk of loss and should be prohibited," Birnbaum said in an opinion piece he wrote for Insurance Journal, Aug. 6, 2007.

But not all consumer advocates agree and some have even mellowed a bit on the issue.

Robert Hunter, who follows the insurance industry for the Consumer Federation of America, says the issue is far from dead. He concedes it's less widely debated today than a few years ago when more than 40 states were debating the issue every year. That's partly because about half of the states have adopted a 2003 model law proposed by the National Conference of Insurance Legislators, or NCOIL.

The model law prohibits companies from "solely" using credit information to set rates. Proponents of stiffer legislation say the model law doesn't do much because insurers prefer to also consider other, non-credit data anyway. The "solely" has taken the sting out for many legislators who had qualms about banning its use completely, according to Hunter.

"I think the NCOIL model really snuffed out a lot of the activity," Hunter said. "It gave the legislators a way to look like they were doing something without offending the insurance companies."

However, some states have added some restrictions. In Washington and most recently Delaware, insurance companies can apply credit models to only new customers.

In 2002, Maryland became the first state to ban insurance scoring for homeowners' premiums. Hawaii doesn't allow scoring for homeowners insurance either, and regulators in California and Massachusetts don't let companies consider credit when setting auto insurance rates.

Win/Win Attitude
Still insurance representatives agree -state battle is less "onerous" than it used to be.

"Over the last three or four years, this issue has kind of calmed down," said Sam Sorich, a vice president with Property Casualty Insurers Association of America, an insurer trade group. "More and more consumers now understand that their credit will be considered. There's a growing acceptance of it. Frankly, most people are helped by the fact an insurance company is using credit."

Some of the FTC report's major conclusions support Sorich and other insurance representatives on the positive aspects of credit scores. Among these findings:

• Insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.


• Use of credit-based insurance scores may result in benefits for consumers. For example, scores permit insurance companies to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers for whom they would otherwise not be able to determine an appropriate premium. Scores also may make the process of granting and pricing insurance quicker and cheaper, cost savings that may be passed on to consumers in the form of lower premiums.


• Credit-based insurance scores appear to have little effect as a "proxy" for membership in racial and ethnic groups in decisions related to insurance. The relationship between scores and claims risk remains strong when controls for race, ethnicity, and neighborhood income are included in statistical models of risk.

In spite of these conclusions, Congressional leaders want to hear the supporting theories, opinions, and critical remarks for themselves.

A Congressional hearing on the FTC study and the use of credit scores at the state level that was scheduled in July, but was cancelled by U.S. Representative Melvin L. Watt, D-N.C., chairman of the Subcommittee on Oversight and Investigations. No alternative date has been selected to hold the hearing, but it is clear that Rep. Watts will hold the hearing and expects to hear from a wide array of interested parties.

Reports from the Associated Press contributed to this article.

Feds release data on drunken driving fatalities

Texas led the nation with 1,354 drunken driving fatalities in 2006 and was among the states to record the largest increase in such deaths, federal transportation officials said.

The National Highway Traffic Safety Administration released in late August data showing drunken driving deaths increased in 22 states and fell in 26 states in 2006.

The NHTSA reported that in total 17,602 people were killed in the United States in alcohol-related motor vehicle traffic crashes, essentially unchanged fromthe 17,590 alcohol-related fatalities in 2005.

There were 13,470 deaths nationwide in 2006 involving drivers and motorcycle operators with blood alcohol levels of 0.08 or higher, which is the legal limit for adults throughout the country. That number was down slightly from 2005, when 13,582 people died in crashes involving legally drunk drivers.

Texas' 2006 total was an increase of 34 from 2005, putting it even with Arizona and Kansas for the biggest jump. However, Utah, Kansas and Iowa had the largest percentage increases compared with 2005.

"Texas has run a first close and second with California for years," said Susan Bragg, victim services director for the North Texas chapter of Mothers Against Drunk Driving. "It's because traditionally Texas hasn't been known as a strong enforcer of DWI laws. We have a lot of highways. We have a lot of drivers."

Results nationwide
The overall number of deaths involving drivers and motorcycle operators with any amount of alcohol in their blood was 17,602 last year. That was up from 17,590 in 2005, said Heather Ann Hopkins, spokeswoman for the national highway administration.

"The number of people who died on the nation's roads actually fell last year," U.S. Transportation Secretary Mary Peters said at a news conference in Arlington, Va., a Washington suburb. "However the trend did not extend to alcohol-related crashes."

Transportation officials announced the new figures as they unveiled an $11 million nationwide advertising campaign as part of a Labor Day weekend campaign called "Drunk Driving. Over the Limit. Under Arrest."

"This crackdown is very, very, very important because it's the penalties that are imposed when someone chooses to ignore the law that really have the ability to make changes," Peters said.

Florida, Missouri and Pennsylvania had the greatest decreases in numbers of drunken driving deaths last year, while the District of Columbia, Alaska and Delaware had the largest percentage decreases compared with 2005.

The District of Columbia had the smallest actual number of drunken driving deaths with a total of 12.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Fatal workplace injuries drop slightly in 2006

The Department of Labor's BLS National Census of Fatal Occupational Injuries for 2006 reported that 5,703 people died from on-the-job injuries in 2006 compared with 5,734 in 2005. The rate of fatal work injuries in 2006 was 3.9 per 100,000 workers, down from a rate of 4.0 per 100,000 in 2005, BLS reported.

The overall fatal work injury rate for the U.S. in 2006 was lower than the rate for any year since the fatality census was first conducted in 1992.

Fatal highway incidents remained the number one cause of on-the-job deaths claiming 1,329 lives, accounting for nearly one out of four fatal work injuries. While fatal highway incidents remained the most frequent type of fatal work-related event, the number of highway incidents fell 8 percent in 2006. The number of fatal highway incidents in 2006 was the lowest annual total since 1993.

Falls ranked second, increasing 5 percent in 2006, claiming 809 lives. The 809 fatal falls in 2006 was the third highest total since 1992, when the fatality census began. Fatal falls from roofs increased from 160 fatalities in 2005 to 184 in 2006, a rise of 15 percent.

Being struck by objects ranked third, with 583 fatalities, although the number of workers who were fatally injured from being struck by objects was lower in 2006, after increasing for the last three years. The 583 fatalities resulting from being struck by objects in 2006 represented a 4 percent decline from the 2005 total.

Workplace homicides ranked fourth claiming the lives of 516 workers, with more than 80 percent of those workers being shot. However, the number of workplace homicides in 2006 was a series low and reflected a decline of over 50 percent from the high reported in 1994, the Census reported.

Fatalities involving fires and explosions increased by 26 percent in 2006, rising from 159 in 2005 to 201 in 2006. Fatalities resulting from exposure to harmful substances or environments were also higher in 2006, led by a 12 percent increase in exposure to caustic, noxious, or allergenic substances.

Other key findings
Coal mining industry fatalities more than doubled in 2006, due to the Sago Mine disaster and other multiple-fatality coal mining incidents.

Fatalities among workers under 25 years of age fell 9 percent, and the rate of fatal injury among these workers was down significantly.

The 937 fatal work injuries involving Hispanic or Latino workers in 2006 was a series high, but the overall fatality rate for Hispanic or Latino workers was lower than in 2005.

Fatalities among self-employed workers declined 11 percent and reached a series low in 2006.

Aircraft-related fatalities were up 44 percent, led by a number of multiple-fatality events including the August 2006 Comair crash.

Reducing fatalities
"Business and labor must continue to work together with government to reach the ultimate goal of zero fatalities," said Michael W. Thompson, president of the American Society of Safety Engineers (ASSE). "The BLS report noted that 5,703 people lost their lives on-the-job in 2006. The report indicated the number one activity in the workplace that led to fatalities was again transportation incidents."

In all, 27 states reported higher fatality numbers in 2006, while 23 states and Washington, D.C., recorded lower totals, ASSE reported. Texas had the highest number of worker fatalities with 486 followed by California with 448 and Florida with 355. The 12 states recording an increase in fatalities by 20 percent or more were Alaska, Delaware, Hawaii, Kentucky, Maine, Michigan, Nebraska, New Mexico, North Dakota, Rhode Island, Vermont and West Virginia.

"We applaud those states that continue to see a drop in worker accidents and fatalities, such as Alabama, Iowa, New Hampshire, New Jersey, South Carolina, Wisconsin and Wyoming and the District of Columbia which recorded declines of 20 percent or more," Thompson added.