Is Insurance Going to the Dogs?

Dog bites have become a major insurance issue. The American Association of Insurance Services (AAIS) has just announced that it will be filing an exclusion for use with its homeowners and personal umbrella forms that will eliminate BI and PD liability coverage for claims arising from direct physical contact with any (emphasis added) canine. According to AAIS, a number of companies have filed exclusions or limitations on their own in various states.1

I think the insurance industry is overreacting. There are approximately 77.5 million owned-dogs in the United States and 39 percent of U.S. households own at least one dog.

One of the advantages of package coverages is the reduction of adverse selection. The extended coverage perils were an early example, remember them? By combining windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion, and riot into one endorsement2 insurers were protected against insureds who felt most exposed to one peril (e.g. windstorm) and who would therefore be the ones to most desire the coverage.

Dog liability insurance is not generally sold as a stand-alone coverage. It’s part of the homeowners personal liability coverage, which, in turn, is packaged with the property coverage for a homeowner. Homeowners policies aren’t bought solely to obtain dog liability insurance.

Because of catastrophe potential in certain areas, windstorm deductibles are higher or coverage is excluded entirely and is provided by windstorm pools. But dog liability does not present a catastrophe potential. Dog bite claims cost insurers $412 million in 2010.3 That’s not petty cash, but there are more than 70 million homeowners in the US. Even if only half of them carry homeowners insurance, that’s a cost of under $12 per policy ($412 million divided by 35 million). The essence of insurance is spread of risk—dog liability as a part of a homeowners policy achieves it.

The exposure should be controlled by underwriting, not by blanket exclusions. AAIS says that one New York company has received approval for a $50,000 deductible on dog liability claims arising from a dog with a prior history of biting or attacking.4 Kingstone Insurance Company has received approval to write a Canine Legal Liability policy in New York on an admitted basis. A spokesman for one major insurer said “We do not underwrite for breed, but if we determine that a dog has a history of biting, we may add an endorsement excluding liability coverage for the dog and ask the policyholder to sign it.”5 That’s a realistic approach. Insurance departments should not approve blanket dog-liability exclusions.

Popeye and Longshore & Harborworkers Workers Compensation

Longshore & harborworkers workers compensation (USL&H) is mandated by federal law to protect maritime workers who are not seamen. It aims to close the gap between state workers compensation coverage and the Jones Act, the federal law that protects seamen. USL&H provides employee benefits to employees engaged in maritime employment if any injury or death occurs on U.S. navigable waters and any adjoining pier, dock, or other adjoining area used to load, unload, or repair ships. Benefits are similar to, but often better than, those provided by state workers compensation plans. For example, the current maximum weekly wage replacement payment for USL&H is $1,224, New York’s workers compensation maximum is $740 a week. (New York is no long near the bottom in maximums; other states have grabbed that distinction. For example, Mississippi’s maximum is $427.20.) Concurrent benefits are permitted.6 In certain situations, employees can collect state WC benefits plus additional USL&H benefits to equal the maximum USL&H benefit level.

Disputes over just who is covered by USL&H requirements started almost immediately after the law was passed in 1927. In one often cited case, the court remarked, “The Longshore and Harbor Workers’ Compensation Act does not cover ‘all those who breathe salt air,’ but neither is it limited to Popeye.”

The court upheld the Hawaii Benefits Board, which had ruled that an employee killed while excavating a utility trench on land in connection with the renovation of submarine berths at Pearl Harbor was a harbor worker, even though his specific job was not uniquely maritime in nature.7 The judge was in error, however about Popeye. Popeye was a seaman (I’m Popeye The learning point for most of us is to watch out for operations with an incidental maritime aspect. USL&H may be called for.

Employee Dishonesty—They Stole $100,000 Plus from Two Different Little Leagues

In July, 2009 the treasurer of the Stony Point Little League, located in suburban Rockland County, stole $156,150 from the league.8

That should have been a wake-up call to other volunteer organizations, certainly those in Rockland County, right? Apparently not. On May 4th, 2011, The Journal News ran a story about another treasurer who stole $100,000 from the New City (Rockland County) Little League.9 This leads to two possible conclusions:

1. There’s something in the water in Rockland County

2. Any organization, anywhere, can be struck by embezzlement and often of an amazing size.

What can we do? Every organization, business, government, non-profit and volunteer has to be alert to the possibility of internal theft and take basic precautions. Small organizations should at least require countersignature of checks and have bank statements reconciled promptly by someone who doesn’t have the authority to deposit or withdraw funds. If at all possible, a CPA should review accounts and procedures. And, (this is after all the INSURANCE Advocate) we should be urging every organization to carry highlimit employee dishonesty/theft insurance. There is one wrinkle in employee dishonesty/ theft insurance for volunteer organizations, and it’s obvious in the title of the policy—the thieves are not employees. What to do? When all else fails, read the directions. Right there in the manual is the endorsement you need. For ISO forms it’s CR 25 09 10 10 (Include Volunteer Workers As Employees.) If you have a grudge against your E&O insurer, don’t add that to the policy.

1 “Dealing with Dogs” AAIS Viewpoint (AAIS, Naperville, IL) Winter 2011 page 3

2 I’ve listed them in this order because the mnemonic “WC Shaver” is engraved in my memory.

3 “Dog-Bite Claim Costs Rise Most Since 2007 http://www.bloomberg.com/news/2011-05-11/dog-bitecosts- increase-most-since-2007-on-medical-expenses-1-.html 4 “Dealing with Dogs” Op cit

5 “Biting back on dogs” AAIS Viewpoint (AAIS, Naperville, IL) Winter 2011http://www.aaisonline.com/viewpoint/04fall2.html 6 The supreme court case setting out the concurrency principle is Sun Ship v. Pennsylvania, 447 U.S. 715 (1980)

7 Healy Tibbitts Builders, Inc. John M. Mannering v. Director, Office Of Workers’ Compensation Programs, Darlette Maumau, etal. No. 04-70575 US Court of Appeals 9th Circuit (2006).

8 “Little League Treasurer Sentenced” http://rockland.lohudblogs.com/2010/08/25/ex -little-league-treasurer-sentenced/ 9 “New City Little League treasurer accused of embezzling $100,000” LoHud.com (Journal News) May 4, 2011.http://www.lohud.com/article/20110504/NEWS 03/105040361/New-City-Little-Leaguetreasurer- accused-embezzling-100-000