Maine laws on bike helmets, seat belts, teens' cell phone use

Like other driving instructors across Maine, Dwight Hawkins has a new lesson to add to his course this fall: If you're under 18 and behind the wheel, lose the cell phone.

As of Sept. 20, a new Maine law will prohibit anyone less than 18 years old from driving while using a mobile phone or handheld electronic device. The law sets a $50 fine for the first violation and $250 for second or subsequent offenses.

Scores of laws affecting motorists, businesses, consumers, students and others take effect Sept. 20, which marks the 90th day after June's adjournment of the 2007 legislative session.

Hawkins, whose Area Driving School Inc. has 10 locations in central Maine, said he's been teaching young drivers about the dangers of distractions such as eating, fixing hair and typing on laptops. He's also telling them about the new cell phone restriction.

"Is it being heard? Well, they're teenagers. They think they're invincible," said Hawkins. "The law is wonderful -- if we're going to have enforcement."

Another far-reaching new law tightens up Maine's seat belt law.

While many drivers and passengers have gotten into the habit of buckling up, the old law only allowed police to cite a driver or passenger for not strapping in if the driver was stopped for violating another law. The new law allows an officer to cite a driver or passenger 18 or older solely for failing to wear a seat belt. If a child is unbuckled, the driver can be cited.

"It's going to save lives," said Carl Hallman of Maine Bureau of Highway Safety. Warnings will issued until April 1.

Beware of bikers
Drivers must also pay closer attention to bicyclists. A new law says motor vehicles must give cyclists 3 feet of clearance when passing. It also clarifies that motorists may cross the center line in no-passing zones in order to pass bicyclists, if it's safe to do so.

The new law also bolsters Maine's youth bicycle helmet law, which previously had no fines for violations. Now, youths 15 and under who fail to wear helmets can be fined $25 after the second or subsequent offense.

A separate law gives senior citizens new protections from financial exploitation when transactions are made for them. Banks and credit unions can disclose financial records to the state when they believe an incapacitated or dependent adult is at risk of abuse or exploitation.

More young Mainers will be protected from losing health insurance. A new law says individual and group health insurance policies must offer to continue coverage for dependent children up to 25 years of age. Eligibility rules, such as being unmarried, apply.

Maine's family medical leave law expands to cover those who need to care for a sick domestic partner.

A new law intended to reduce risks of exposure to lead poisoning requires landlords to give 30 days' notice when undertaking repairs or renovations in residential buildings built before 1978 that include one or more units for rent.

State government tightened its ethics rules by requiring that lobbying of executive branch officials be reported separately from lobbying of officials in the legislative branch.

Mass. warned on coastal development and insurance

A major hurricane making landfall in Massachusetts could cause billions of dollars worth of property damage while also severely straining the resources of the state's residual homeowners' insurance market, the FAIR Plan, according to the industry.

Dr. Robert Hartwig, president of the Insurance Information Institute, warned that the state is among the most financially vulnerable when it comes to insured losses from a major storm.

"The number of Massachusetts residents living in hurricane-prone parts of the state has grown dramatically over the past three decades along with the value of the properties in which they live," said Hartwig, in testimony before the Massachusetts state Legislature's Homeowner's Study Commission. "These undeniable trends pose challenges to consumers, insurers and public policymakers."

According to Hartwig, Massachusetts is home to insured coastal properties valued cumulatively at almost $700 billion. Only Florida, New York, and Texas are at greater financial risk in this regard.

Barnstable County on Cape Cod has a population five times larger than it did during the last period of intense hurricane activity in Massachusetts, an era dating back to the middle of the 20th century, Hartwig explained.

AIR Worldwide, a risk modeling firm, estimates that Massachusetts faces a 15 percent chance of a catastrophic storm within the next decade that would cost insurers $5 billion or more.

The FAIR Plan now offers homeowner's policies comparable to ones offered by private insurers. Originally set up as the state's insurer of last resort, it now has more than one-third of the homeowners insurance market in Cape Cod, as well as Martha's Vineyard and Nantucket, with more than 60,000 policies. As such, the FAIR Plan's exposure to loss, which stood at $16.7 billion in 2001, grew to $68.6 billion in 2006, an I.I.I. analysis found.

Hartwig's report can be found at www.iii.org/media/met/massachusetts/.

Commerce Banc Insurance to be sold

Canada's TD Bank Financial Group reported that it will acquire the Mid-Atlantic regional bank Commerce Bancorp Inc. in a 25 percent cash and 75 percent stock deal valued at $8.5 billion.

If approved, the purchase would double TD Bank's presence in the U.S. by adding nearly 460 Commerce branches on the East Coast. TD Bank Financial Group said it would become the seventh largest bank in North America as measured by branch locations and the first bank with "critical mass" in both Canada and the U.S.

At the same time, Commerce has agreed to negotiate the sale of its $1 billion Commerce Banc Insurance Services, Inc. (CBIS) to George E. Norcross, III, who founded the insurance division and is currently chairman and chief executive officer of CBIS and a director of the Commerce Board. Any sale would be subject to the approval of TD Bank Financial Group.

TD Banknorth operates TD Banknorth Insurance Agency, Inc., which is New England's largest insurance network with 15 offices in Massachusetts, Connecticut, New Hampshire, Maine and upstate New York. Commerce Banc Insurance Services (CBIS) ranks among the 25 largest insurance agencies in the nation, with $1 billion in premium, more than 130,000 clients and 13 locations.

The operations of Commerce Bank include nearly 460 locations and close to 700 automated teller machines throughout New Jersey, New York, Connecticut, Pennsylvania, Delaware, Washington, DC, Virginia, Maryland and Southeast Florida.

The bank acquisition is expected to close in March or April 2008 subject to approvals from Commerce shareholders and U.S. and Canadian regulatory authorities.

Plaintiffs fail to prove racketeering by Marsh, insurers and brokers

Dismissal of corruption conspiracy charges follows earlier dismissal of antitrust complaint

The same federal judge who early in September dismissed all federal antitrust charges against Marsh & McLennan Companies and a group of other brokers and insurers has now thrown out related federal charges of racketeering as well.

Judge Garrett E. Brown Jr. of the U.S. District Court for New Jersey dismissed the racketeering complaint with prejudice, citing a lack of facts and logic. Dismissing with prejudice means the insurers and brokers will not face another suit on similar claims.

The plaintiffs -- a group that included financial services, manufacturing and utility companies that were customers of the defendants -- alleged that these large insurance brokers and insurers engaged in a criminal conspiracy -- described as a hub-and-spoke conspiracy -- to control business in violation of the federal Racketeering Influenced Corrupt Organization statute.

Brown found that the plaintiffs' legal arguments could not redeem the shortcomings in their factual pleadings, writing at one point: "The sole support for plaintiffs' allegations is limited to plaintiffs' self-serving conclusions. However, plaintiffs' conclusions unsupported by facts state no RICO enterprise and should be dismissed."

The lawsuits stemmed from investigations initiated three eyars ago by Eliot Spitzer, then New York attorney general, involving price fixing, fake quotes, contingent commissions and steering of business.

The lead defendant, Marsh, welcomed the development. In a statement Marsh said, "We are very pleased that the federal court has dismissed, with prejudice, all of the federal antitrust and RICO claims asserted against Marsh and other industry participants. This decision represents a major step forward for Marsh."

The plaintiffs claimed that the defendants engaged in a series of fraudulent schemes. They charged that insurers paid kickbacks to brokers in exchange for having business allocated to them; kept their contingent commission agreements secret from their clients; and built the cost of the kickbacks into the premiums they charged their clients.

But Brown ruled that the plaintiffs failed to prove their charges. He found that the defendants were involved in normal business activities without collusion. He ruled the plaintiffs had no proof that there was any sort of conspiracy.

"In the case at bar, plaintiffs' allegations offer nothing more than a kaleidoscope of acts executed by a kaleidoscope of actors, and combine broker-defendants and insurer-defendants in such a fashion that the court is unable to discern any systemic permutation," Brown wrote. "While discussing dozens of transactions and hundreds of actors, plaintiffs fail to outline even a single set of actors that interacted with each other and executed their transactions systemically."

Defendants in the suit that have now been cleared of federal antitrust charges are some of the largest insurance companies and brokerages including American International Group, The Hartford, Fireman's, Liberty Mutual, American Re, Travelers, Chubb, Marsh, Willis, Aon and Hilb Rogal & Hobb.

The case was a consolidation of suits from around the country brought under federal statutes. These consolidated lawsuits took those charges to another level--claiming that they were part of a conspiracy among certain large insurers and insurance brokers and accusing the players of both federal antitrust violations and racketeering.

Last month, Brown put related federal antitrust conspiracy charges to rest in granting the defendants' motions to dismiss.

With this RICO ruling, Brown also rejected a plea from plaintiffs to be given another chance. "In view of the facts that (a) this matter was initiated almost three years ago but (b) plaintiffs, even after substantial discovery and three previous rounds of extremely voluminous pleadings failed to meet their pleading burden, the court concludes that granting plaintiff leave to amend would be futile, unduly prejudicial to defendant and not in the interests of justice," Brown concluded.

Fired-up over safer cigarettes

Now 21 states require cigarettes to be self-extinguishing

Cigarettes sold in 21 states will be self-extinguishing after a strikingly high 15 states passed new laws this year to combat smoking-related blazes, the No. 1 cause of home-fire deaths.

"Fire-safe" cigarettes, manufactured with extra bands of paper to snuff the flame if a lighted cigarette isn't being smoked, even received unanimous approval in the tobacco stronghold of Kentucky.

In 2004, New York became the first state to require self-extinguishing cigarettes, which also are on the shelves now in California, Vermont and, as of July 1, Oregon. Seventeen more states will require them soon, with most laws taking effect in 2008 or 2009.

Even advocates of the legislation were startled by its swift progress this year.

"No one really even had to testify" before the legislature, said Richard Peddicord, assistant state fire marshal for Kentucky, where a nation-high 28.6 percent of adults smoke, according to the Centers For Disease Control and Prevention.

After years of failing to get fire-safe cigarette legislation through Congress, advocates turned to the states, forming the Coalition for Fire-Safe Cigarettes and enlisting the aid of firefighters and local officials.

"Previously, the tobacco companies had been able to derail any federal attempts to pass this legislation. So we decided to go to the states, and the coalition has done that very effectively," said Lorraine Carli, of the National Fire Protection Association, a nonprofit advocacy group based in Massachusetts that formed the coalition.

The coalition provided background, such as model legislation and a testing standard, and staged public events to generate publicity. From there, local advocates pressed lawmakers.

"Firefighters and fire-safety people have an entrepreneurial style about them. All it takes is one or two guys to make something happen," said Dick Gann, head of the National Institute of Standards and Technology's Fire Research Division. "It's no surprise that you start to get this nonlinear, exponential expansion of grassroots movement."

Each state has used the standard established by New York. Kentucky's push this year was driven in large part by a Feb. 6 home fire in Bardstown that killed 10 and was believed to have started when a smoker feel asleep with a lighted cigarette.

According to the fire-safety advocacy group, smoking-related fires kill 700 to 900 people and cause hundreds of millions of dollars in property losses each year.

A study of New York's experience with self-extinguishing cigarettes by the Harvard School of Public Health found that they were far more likely to go out if left unattended and that there had been no change in the price of cigarettes and no decrease in tax revenue from cigarettes.

Most of this year's laws give cigarette companies a year or more to alter their manufacturing and to allow stores to liquidate their supply of the old cigarettes.

In the past, cigarette companies have lobbied against federal legislation, but spokesmen now say the industry prefers a federal standard to differing state-by-state standards. David Howard, a spokesman for R.J. Reynolds Tobacco Co., said the company had lobbied against federal legislation previously because it failed to prohibit states from establishing more rigid standards.

The level of opposition to state laws varies by company. Howard said R.J. Reynolds has opposed state legislation. But Bill Phelps, a spokesman for Philip Morris USA, said, "We still think that a nationwide standard would be best, but we do not oppose state legislation that would establish the same standard as in New York."

One of tobacco companies' beefs with fire-safe cigarettes is that they may instill "a false sense of security in consumers who may erroneously believe that they can carelessly handle cigarettes without concern for starting a fire," according to a position statement on R.J. Reynolds' Web site.

"Calling it 'fire-safe' is misleading," said Howard of R. J. Reynolds. The real problem is "the careless handling of cigarettes," he said. The fire-safety group has called that assertion insulting to consumers.

Fire-safety experts say that smokers should not notice any difference in taste with the new cigarettes, which many tobacco companies prefer to call Reduced Ignition Propensity (ironically, RIP) cigarettes, and that the health risks -- other than the risk of fire -- remain the same.

The U.S. Senate considered requiring self-extinguishing cigarettes as early as 1974.

The states that passed legislation before this year are California, Illinois, Massachusetts, New Hampshire, New York and Vermont.

These states enacted laws this year: Alaska, Connecticut, Delaware, Iowa, Kentucky, Louisiana, Maine, Maryland, Minnesota, Montana, New Jersey, Oregon, Rhode Island, Texas and Utah.

Copyright, 2007, Stateline.org.

Former franchisees challenge Brooke agent dealings

Overland Park, Kan.-based insurance agency franchisor Brooke Corp. has been hit with a number of lawsuits that raise questions about its business dealings with agents who bought into its nationwide operation, which now boasts some 800 locations.

Brooke Corp. itself puts the number of lawsuits at 12, which it maintains is not a big number, and notes that some are "old news" dating back to 2000. The company also says the allegations are false, which would appear to be backed up by an investigation by the Louisiana Insurance Department that found no evidence of wrongdoing by Brooke. (See other story on this page.)

But some upset Brooke franchisees are still upset and speaking out.

Arthur C. Mann, president of IGWT Insurance Services in Tampa, Fla., filed a lawsuit against Brooke in U.S. District Court claiming that Brooke misrepresented facts and manipulated funds. The lawsuit alleges five counts including fraudulent misrepresentation (Brooke Franchise and Heritage), negligent misrepresentation (Brooke Franchise and Heritage), breach of contract (one each against Brooke Franchising and Heritage) and violation of the RICO Act (Brooke Franchise and Brooke Credit).

Mann purchased two Brooke franchise agencies in Brandon and Tampa, Fla., in 2005. Mann agreed to operate as a Brooke franchisee for five years in exchange for services to be provided by Brooke. The lawsuit alleges Brooke intentionally misrepresented the yearly agency commissions and failed to fulfill its contractual obligations, among other problems.

According to Brooke general counsel Cynthia Weber Scherb, the charges in the Mann lawsuit that was filed last January are not true. "We believe that the allegations in the lawsuit are untrue, and we intend to defend vigorously," she said.

Scherb said the Mann case has been stayed by the court and sent to mediation, which has been scheduled for November. "If the parties are unable to resolve their differences in mediation, the court has ordered that the parties proceed to arbitration, and the case will remain stayed pending that arbitration," she added.

Attorney Brett C. Coonrod, who represents Mann, said his client agreed to go to mediation. "This, however, does not mean his claims are any less valid and a decision in his favor will be just as binding on Brooke as would a decision of the U.S. District Court," Coonrod said.

Coonrod maintains that Mann's claims are similar to other Brooke franchisees that he has represented. "I believe that there are fundamental problems with Brooke's accounting processes and its business model insofar as that model relates to the treatment of its agents," he said.

Brooke Franchise Corp. and its finance arm, Brooke Credit Corp., help agents wanting to buy a franchise obtain the funds to make the acquisition, cover set-up costs and expand operations. They also provide the franchisees with access to a slate of national carriers by aggregating the franchisees' premium volume.

Generally franchisees pay $165,000 to join the Brooke system. There are also additional fees and commission sharing. If Brooke funds the start-up for the agent, its loan is normally amortized over 12 to 15 years at prime plus 3.5 percent interest plus a 3 percent origination fee.

Brooke's cash management program makes sure that if it lends money, it gets paid back. While franchisees retain ownership of their books of business, all premiums and commissions are placed in a third-party trust account. Loan and premium payments are made first before the agencies get any of the funds.

Joel Jennings of Metropolis, Ill., is another agent who feels he got burned by Brooke and has filed suit. Jennings complains that Brooke has "ruined" his life. That's a departure from the original enthusiasm he exhibited when he bought into the franchise about four years ago and was interviewed by Insurance Journal. At that time he said that Brooke was an answer to his prayers and offered strength and the national companies that he needed to expand.

"Your agency is strengthened considerably when you go with Brooke," Jennings said in the interview. "Now we have several national carriers we could not touch before. Now I've got products to sell that allow me to go out and compete in a way I could never do before."

Jennings said back in 2004 that perpetuation was a principal reason he joined Brooke. "I was working on how I could perpetuate my business and simplify my life at the same time," he said. "I was packing a lot of pressure managing and being financially responsible for everything that goes on around here."

Jennings is singing another tune now.

"I am 71 years old and my retirement savings is gone," Jennings said. Jennings alleges that he was duped by Brooke's fees, loan payments and failed promises in a variety of areas.

Rhonda Lobell, of Gonzales, La., is also miffed at Brooke. She is filing bankruptcy, which she blames on Brooke.

Lobell said she bought into the franchise business with great hopes of expanding her book of business but soon found that instead of making more money, she was losing money. She alleges that in spite of producing separate receipts showing that premiums were deposited, she did not receive commission checks.

Lobell contends that Brooke thrives on the franchise fees, commissions and consulting fees it charges. She believes that Brooke would just as soon see its franchisees fail because of the money it makes when they do.

Lobelle claims that at least 148 agents have contacted her Web site with complaints about their experience with Brooke.

A Sept. 27, 2007, story on Insurance Journal's own Web site (www.insurancejournal.com) about Mann's lawsuit elicited comments from several anonymous readers who identified themselves only as disgruntled former Brooke franchisees.

Brooke Corp.'s general counsel disputes all of the allegations. "We are troubled to hear that anonymous writers are spreading false information about our company. Nevertheless, we are pleased to 'go on the record' and encourage all interested persons to carefully review our SEC filings, UFOC filings and the recent examination report issued by the Louisiana Department of Insurance," Scherb said.

Scherb added that the firm also believes "that the number of lawsuits we've had with franchisees has been very low, and that we've been successful in resolving them at little or no cost to the company."

Kyle Garst, Brooke Corp. chairman and CEO, also said "that 12 franchise related lawsuits or arbitrations (both closed and active) ... go back to 2000 and include six old closed lawsuits/arbitrations that we won or settled long ago." Garst said that of the six current cases disclosed, two have agreed to arbitration and one has agreed to mediation. In some of the cases, Brooke initiated legal proceedings against a franchisee.

"I hope this better demonstrates why we believe our franchise litigation exposure is minimal," he said.

Despite the complaints of a few, Brooke keeps growing. It just bought 60 agency locations from Chicago-based J and P Holdings Inc. The agencies will be converted into franchises or merged into existing locations.

State probe clears Brooke Corp. of wrongdoing

The Louisiana Department of Insurance investigated complaints against Brooke Corp. from former franchisees in that state and cleared the company of all wrongdoing except for a few minor licensing snafus.

The allegations included charges Brooke does not fully disclose the franchise structure and costs; does not allow agents to verify commissions paid by insurers; rushes buyers into their franchise deals; overcharges franchisees for operating expenses; and intentionally manages the franchise agencies for failure so they can take over and sell the agency.

The Louisiana examination report, issued in January, cleared Brooke on every allegation. It also went further to dispel the charge that Brooke wants it franchise agencies to fail by noting that failed agencies are very costly for Brooke. One Louisiana failure cost it almost $170,000, according to the report. Louisiana examiners found that for the five-year period (2002 to 2006), about 133 franchises, or 13.3 percent, were terminated -- a percentage the report said was extremely low since the failure rate for most start-up businesses is between 80 percent and 90 percent.

Mass. consumer groups say auto deregulation plan needs work

A Massachusetts consumer group and Attorney General Martha Coakley urged Insurance Commissioner Nonnie Burnes to incorporate more consumer protections and ban the use of credit scores in her proposed auto insurance deregulation plan at a public hearing.

"We all like competition when it works," said Deirdre Cummings, legislative director for the consumer watchdog MassPIRG, "but we've seen enough failures to know that without proper safeguards, businesses will seek to add to their bottom line at the expense of the public and the consumer."

"Managed competition regulations should implement competition in a manner that benefits consumers," said Assistant Attorney General Glenn Kaplan on behalf of Coakley. "These proposed regulations need modification to preserve important consumer protections, such as the opportunity for examination, review, and if necessary, a hearing, to ensure that rates are competitive and comply with Massachusetts law."

Burnes has proposed regulations to move from a "fix and establish" insurance regulation system, where the commissioner sets the insurance premium after a hearing process, to a "managed competition" system, which would establish guidelines for insurance companies to set their own rates.

The public hearing was part of the process Burnes hopes will result in a final regulation by next month and the beginning of more insurer competition by next April.

MassPIRG's Cummings told Burnes that any new auto insurance system should be measured against what consumers have today.

"Consumers should have a plan that preserves next year's 10 percent rate decrease, protects our right to choose any insurer, and allows companies to compete for our business based only on our driving record," she said.

As have several legislators, Cummings urged Burnes to expressly list all the rating and underwriting factors that may be used by insurers. A motorist's driving record and experience should be the only factors an insurer can use to deny coverage altogether, the group added.

Burnes' regulation takes the opposite approach--indicating only the factors that insurers are prohibited from using.

Cummings argued that credit scores and all other socioeconomic factors must not be allowed for use in underwriting or rating. Burnes' proposed regulation bans most socioeconomic facors including occupation and income but nixes the use of credit scoring for the first year only. It is silent on the use of credit in underwriting.

Cummings also called for rates and products to be standardized, uniformly disclosed, and made accessible on the Division of Insurance's website. Each insurer's underwriting methodology should also be available on the website, she testified.

"This will allow consumers to make informed choices and allow regulators to catch new unfair or discriminatory rating and underwriting factors," Cummings said.

Finally, Cummings called for the commissioner to "mandate a comprehensive plan to reduce our highest in-the-nation accident rate, which is the single largest factor driving our premiums. Without such a plan, consumers will fail to see any meaningful rate reductions in the long term."

The attorney general's office focused its criticisms on the "failure to ban the use of credit scoring by insurance companies after the first year, the lack of protection for good drivers in urban areas, and the risk of collusion by insurance companies."

Kaplan said the regulations suggest that good drivers with bad credit scores could be placed in the residual market. "Specifically, these drivers will be required to buy a policy from one carrier, preventing them from getting a policy from their choice insurer, or from shopping around to obtain discounts," he maintained.

Kaplan also expressed concern that the regulations would interfere with the attorney general's mandate to represent consumers in the review of insurance rate filings. "Not only do the regulations fail to require the industry to provide the attorney general with their filings, they establish an unrealistic timetable for her review," he said.

Kaplan also maintained that the regulations allow insurers "to rely too heavily on last year's rate decision, which did not accurately reflect losses, in setting the current rate, potentially resulting in grossly inflated rates."

Maine cop hit by stolen police car covered

A sheriff's deputy who was run over by his own police vehicle after it was stolen by a Jefferson man on Christmas five years ago is entitled to compensation from his personal car insurance company, Maine's highest court ruled.

The Maine Supreme Judicial Court overturned a lower court decision in ruling that former Lincoln County Sheriff's Deputy Jason Pease was owed money from State Farm Mutual Automobile Insurance Co.

Pease was injured when Michael Montagna drove off in Pease's department-issued Ford Explorer, knocking him to the ground, running over one of his legs and dragging him for about 50 feet. Pease was dispatched to Montagna's residence after Montagna had called police looking for help, telling dispatchers he thought someone was trying to poison him.

Pease, who suffered severe injuries to his knee, was unable to get coverage from Montagna's car insurance policy or from the Lincoln County policy, which did not carry uninsured motorist coverage for employees injured on the job.

Pease then sought coverage for his injuries from his personal car insurance policy issued by State Farm, which also denied coverage. A lawsuit he filed against State Farm was later dismissed in Superior Court.

But in a unanimous decision, the supreme court last month overturned the lower court ruling that freed State Farm from liability.

The lower court had ruled that Pease's policy prevented him from recovering damages when struck by a vehicle, namely the police vehicle that was furnished to him for regular use.

But the supreme court ruled that once the vehicle was stolen, it was no longer furnished for Pease's regular use so Pease could turn to the uninsured motorist provision in his own policy, according to Michael Turndorf, an attorney for Pease. "It was simply a stolen vehicle, and the decision here says there's coverage under these circumstances," Turndorf said.

Attorney Robert Hoy, representing State Farm, said it's unfair to ask insurance companies to pay for risks that are taken by government employees using government vehicles. "The government ought to be taking care of injuries sustained as a result of the operation of those vehicles," he said. "It's really not fair to distribute that kind of risk to companies who don't have a premium for it."

N.J. still tops

New Jersey drivers still pay more for auto insurance than residents of any other state, but the gap is shrinking.

According to a study from the National Association of Insurance Commissioners, the average Garden State driver paid $1,184 to insure each car in 2005. That's about $10 per year below what motorists paid two years earlier.

The Garden State edged out the District of Columbia by $2 dollars per vehicle.

Still, New Jersey's rates are 43 percent higher than the national average of $829.

N.Y. to issue driving licenses for illegal immigrants

New York State officials say a plan to provide driver's licenses to illegal immigrants with valid foreign passports will enhance security by creating records of their identities. But critics say those records could compromise security instead.

New York has between 500,000 and 1 million undocumented immigrants, many of whom drive without licenses and car insurance or with fake licenses, Gov. Eliot Spitzer said in announcing the plan. He said it would bring "people out of the shadows" into American society.

"They no longer need to hide and pretend they are not here," Spitzer said. "We will not become part of what is propagated on the federal level -- that if we don't admit they are here, then we can somehow not provide services. That is bad policy."

The shift in policy is geared toward increasing security and reducing insurance premiums for all New York drivers by an anticipated total of $120 million a year, said state Motor Vehicles Commissioner David Swarts.

Major Internet disruption would cost $250 billion in economic damages

New report urges CEOs to take action now to ensure continuity of their businesses should a meltdown occur

A major disruption to the Internet would not only be detrimental to businesses, public institutions and citizens, but also would cost the global economy an estimated $250 billion, according to a report released by the Business Roundtable, an association of U.S. chief executives.

"America's CEOs have diligently prepared to address and respond to physical attacks that threaten the safety of our employees, economy and quality of life," said Ed Rust, CEO of State Farm and co-chairman of Business Roundtable. "Our report suggests that, similar to physical threats, the risks of attack through the Internet intended on impacting our businesses, economy and national security present new challenges and must be addressed."

The report, "Growing Business Dependence on the Internet: New Risks Require CEO Action," cites the potential and widespread effects a cyber disruption could have on society and urges CEOs to take necessary action to ensure continuity of their businesses.

Among the report's key findings is that an Internet disruption would affect nearly every U.S. business, directly or indirectly, and the efforts to respond will create stress points that will hinder recovery.

In addition to the extensive effects, the report suggests a lack of awareness from business leaders on their reliance on the Internet, thus increasing vulnerability in the case of an interruption, malfunction or disruption. The World Economic Forum estimates a 10 percent to 20 percent probability that a breakdown of the critical information infrastructure (CII) will occur within the next 10 years -- thus requiring immediate attention from business leaders.

The report recommends the nation's business leaders should begin:

• Assessing companies' Internet dependencies, based on their business operations;


• Proactively addressing Internet dependence and interdependence risks in corporate continuity and recovery plans;


• Engaging with industry partners, government and other CEOs to ensure alerts as well as response and recovery plans are in order;


• Sharing information on Internet disruptions with existing industry-operated information sharing and analysis centers (ISACs); and


• Ensuring executive level engagement with government to set and communicate expectations about early warning and threat notifications.

"By addressing the challenges we have identified in this report, the nation's business leaders can ensure their employees and customers are protected and safe, and that the economy still thrives," added Rust.

The full report can be found at: www.businessroundtable.org/
pdf/Security/
BR_Internet_Business_Dependence_Report_09252007.pdf

Supreme Court to hear case pitting federal v. state product liability laws

The Supreme Court said late last month that it will decide a case that centers on whether federal regulation of pharmaceuticals preempts state law.

The case involves a product liability lawsuit against Pfizer's Warner-Lambert unit.

A group of Michigan plaintiffs led by Kimberly Kent in April 2000 sued Warner-Lambert Co. over alleged injuries caused by its Rezulin diabetes drug. Rezulin was ordered off the market in March 2000 by the Food and Drug Administration after it was linked to nearly 400 deaths and hundreds of cases of liver failure.

A federal district court dismissed the suit in 2005, citing a Michigan law that shields FDA-approved pharmaceuticals from liability lawsuits. The case was brought under Michigan law but was moved to federal court because other states were also involved.

An exception in Michigan's law that allowed the suits to proceed if a pharmaceutical company misrepresents information presented to the FDA was pre-empted by federal laws governing the regulation of pharmaceuticals, the district court said.

The 2nd U.S. Circuit Court of Appeals, based in New York, reinstated the suit. The appeals court disagreed that the exception in Michigan's law for cases involving fraud against the FDA was pre-empted by federal law.

That decision conflicted with other appeals court rulings in previous cases. Such conflicts in the federal apepals courts are one criteria the justices consider when deciding to take a case.

The case is Warner-Lambert v. Kent, 06-1498. Oral arguments haven't yet been scheduled. The case will likely be decided before the court's term ends in June.

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

House-passed flood insurance bill provides optional windstorm coverage

The U.S. House of Representatives has passed a measure updating the nation's flood insurance program that will give homeowners the option of purchasing windstorm coverage as part of their flood policy.

The legislation also reauthorizes the National Flood Insurance Program for five years through 2013, improves flood mapping, eliminates some rate subsidies, and adds business interruption coverage as an option.

H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, sponsored by Rep. Maxine Waters, D-Calif., passed by a vote of 263 to 146.

In an effort to make the NFIP more actuarially sound, the bill phases out subsidized rates on commercial properties, vacation homes, and second homes built before 1974. Multifamily rental properties are excluded from the phase-out of the subsidy.

Additional optional policy coverage is added, allowing business owners to purchase business interruption coverage at actuarial rates. Additionally, optional coverage at actuarial rates for basement improvements and replacement cost of contents is added. For the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties.

The bill requires the Federal Emergency Management Agency to review the nation's flood maps and makes the updating of maps an ongoing process.

Provisions protecting policyholders include clarification of disclosures about flood insurance availability and plain language information on flood insurance policies. Landlords must notify tenants of contents coverage availability. Further, the bill makes flood insurance effective immediately upon purchase of a home.

To encourage participation in the NFIP, the bill provides for a new community outreach program, and provides for a study of how to increase participation by low-income families. In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.

H.R. 1852 also requires FEMA to report to Congress annually on the financial status of the NFIP, increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent, and authorizes funding for additional staff at FEMA to carry out the requirements of this bill.

The House measure includes a provision authored by Rep. Gene Taylor of Mississippi to provide for an optional multiple peril policy -- to allow property owners to purchase wind and flood coverage in a single policy. The industry has opposed this expansion of coverage.

Industry says no to windstorm
Insurance agents welcomed news of the House approval.

The Independent Insurance Agents and Brokers of America said it is especially pleased with the provisions that increase maximum coverage limits and include optional business interruption coverage and additional living expenses.

"An increase in the maximum coverage limits will better allow both individuals and commercial businesses to insure against the damages that massive flooding can cause, and we're grateful that this increase was included," said John Prible, Big "I" assistant vice president for federal government affairs. "We are also grateful that the House included the optional additional living expenses and business interruption. The security and stability that these optional purchases would provide to consumers is crucial to individuals and to small business people across America."

Agents and insurers were less enthusiastic about Taylor's windstorm provision, however.

The Big "I" said only that it has "some concerns with the inclusion of such coverage in the NFIP." The group said it would work to "ensure that windstorm coverage is affordable and available to Big "I" consumers without unduly displacing the private marketplace."

The National Association of Professional Insurance Agents said the windstorm coverage should be eliminated from the legislation when the Senate considers it.

"Adding wind coverage to the National Flood Insurance Program (NFIP) is a bad idea that we oppose," said PIA Senior Vice President Patricia A. Borowski. "It would result in uncertainty as to whether losses caused by wind should be covered by a policyholder's property policy, a state's wind pool, or the NFIP. The muddle created by this provision will increase disputes about coverage and prompt more lawsuits. It would hurt, not help homeowners."

That reasoning echoed what some insurers have said.

The Property Casualty Insurers Association of America opposes the windstorm option, arguing that while it is "well-intentioned, it may produce unintended negative consequences" for consumers.

"Adding wind coverage will create artificial subsidies, which essentially means rate hikes for consumers in non-coastal parts of the country who do not face the same wind-damage risks as coastal policyholders," said Ben McKay, PCI's senior vice president, federal government affairs. "It is unnecessary for Congress to expand the flood program, considering that wind coverage is already available either through the private sector or state wind insurance programs."

McKay said that residual state-based mechanisms provide coverage for wind damage where no market exists, and private insurers provide wind coverage where there is a market. "Adding wind coverage to the NFIP simply creates a federal government fund that will compete with existing state funds and potentially with the private market," he added.

PCI urged the Senate to pass flood legislation that does not include the wind provision.

The offshore reinsurance tax debate resurfaces in Congress again

An industry executive, representing a coalition of 14 large U.S.-based insurance groups, told the U.S. Senate Finance Committee late last month that a major tax advantage for certain foreign insurance groups could threaten the future of the domestic insurance industry.

The tax advantage allows foreign insurance groups based in places such as Bermuda or the Cayman Islands to legally avoid paying billions of dollars in taxes on much of their U.S. underwriting and investment income, said William R. Berkley, chairman and CEO of W. R. Berkley Corporation and spokesman for the Coalition for a Domestic Insurance Industry.

Berkley and the Coalition say the tax advantage, which originated in practice around 20 years ago, has already caused significant migration of insurance capital abroad. Berkley said the tax advantage permits foreign-based insurers with U.S. affiliates to move much of their taxable underwriting and investment income from their U.S.-based businesses out of the country merely by reinsuring the business with a foreign affiliate in a low-tax or no-tax jurisdiction. This type of reinsurance transaction generally requires a mere bookkeeping entry to shift revenue from one pocket to another and out of the reach of U.S. taxing authorities, Berkley noted.

"By contrast, U.S.-based insurers must pay current U.S. tax on all of their income from these policies," he told the committee. "Thus, even though the U.S. income-generating activities are the same, these foreign-domiciled insurers can avoid U.S. tax on much if not all of their underwriting and investment income."

A report for the hearings, prepared by the Senate Staff -- "Present Law and Analysis Relating to Selected International Tax Issues" -- describes the opposing points of view. "Insurance company reinsurance transactions with offshore reinsurers, particularly affiliated reinsurers, have been characterized as creating the potential for tax avoidance and as causing a competitive disadvantage for U.S. insurance businesses. At the same time, reinsurance is a fundamental component of global risk management techniques."

Recurring concern
The last time Bermuda-based insurers were called into question in Congress was in 2000, when supporters of HR 4192, or the Johnson/Neal bill, proposed legislation aimed at ending "favorable tax treatment" for foreign based insurers, principally those located in Bermuda. The main backers then were Chubb and The Hartford, which are also members of the current coalition. The bill was reintroduced in 2001, but failed to get approval.

While Bermuda-based insurance companies are considered foreign-owned, many such as ACE Limited and XL have strong ties to and a large presence in the U.S. market, and insist they are not trying to avoid taxation.

Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, summarized the points his organization focuses on. "1) Bermuda's substantial economic contribution to the United States; 2) Bermuda's insurers' role in filling U.S. insurance market needs; 3) Explaining that U.S. insurers do substantial affiliated reinsurance transactions for the same business reasons (risk transfer, avoiding trapped capital, diversification) that Bermuda reinsurers do them; 4) Bermuda insurers are primarily in Bermuda for ease of entry into insurance markets and that Bermuda regulation affords insurers an opportunity to quickly form an insurer and start writing business in time to take advantage of new market opportunities."

In a written statement presented to the Senate Finance Committee, Donald Kramer, chairman and CEO of Bermuda-based Ariel Reinsurance Co., pointed out that "a substantial percentage of U.S. insurance companies cede more that half of the gross premiums they write to reinsurers. Affiliate reinsurance is used routinely with the U.S.-based insurance company groups, for valid non-tax reasons." The practice enables related groups of companies to "pool risks and mange them more efficiently."

He joined company past and present Bermuda leaders -- notably Brian Duperreault, former CEO and chairman of ACE Limited, and Brian O'Hara, who founded and still leads XL -- in observing: "First and foremost we are in Bermuda because we can quickly deploy our capital, form a company, get licensed and write insurance."

Kramer said it is "simply incorrect" that Bermuda companies are located on the island "to avoid U.S. taxation." He pointed out that a reinsurance transaction, even among affiliates, "involves the true transfer of risk." In addition "regulation requires the price in a reinsurance transaction to be an arm's length price," he continued.

Kramer isn't alone, nor is he supported solely by ABIR members. Attached to his statement were letters from Risk and Insurance Management Society President Michael Liebowitz and Bill Newton, executive director of the Florida Consumer Action Network.

"RIMS has a history of opposing any legislation that encumbers free market movement and the transfer of risk that is vital to a sound global insurance and reinsurance community," wrote Liebowitz. "We strongly urge you to oppose any legislation that would result in negative implications for the global reinsurance marketplace and more importantly, those U.S. businesses who rely on this market to manage their risk exposure."

Nelson was even more specific. "We urge you [the Senate Finance Committee] to be on the lookout for amendments proposed this summer and fall that offer hundreds of millions in additional revenue that in the end will be paid for by Florida consumers!" Nelson wrote. "It's not a good deal and these amendments should be exposed as protectionist measures by U.S. insurers seeking to grab more business for themselves by increasing the taxes on their non-U.S. competitors."