Legally
Speaking -- Faulty construction does not
justify emotional damages
Plaintiffs who sued a contractor for emotional distress after
their construction project went bad won a victory in lower court.
On appeal, however, thc court ruled that their distress did not
warrant monetary compensation.
The National Association of Independent Insurers argued in a
friend of the court brief that awarding monetary compensation
for non-economic damages in a simple breach of contract case
would set a dangerous precedent.
The case, Erlich v. Menezes, involved a dream home that turned
into a nightmare when the roof developed leaks “in every
conceivable location.” While the lower court found the contractor
negligent, it did not find fraud or intentional damage.
Neverthess, the court awarded the plaintiffs $406,700 for repairs
plus an additional $100,000 for emotional distress, $50,000 for
pain and suffering, and $15,000 for lost wages. NAII claimed
that the award for emotional distress was the first such award
in California for a simple breach of contract and would set a
bad precedent. NAII argued that "adding an emotional distress
component to recovery for construction defects" would cause
housing prices to soar.
In overturning the decision, the California Supreme Court found
that because there was no fraud, the award for emotional distress
was not appropriate.
Homeowner
arena tough for insurers
The past decade has been no picnic, and the
next decade is also likely to be lean for underwriters of homeowners
insurance according to a paper prepared by the American Insurance
Association (AIA). While the demand for homeowners insurance
has grown consistently, the impact of recent catastrophes and
vigorous competition have driven the industry to a negative 16.2%
underwriting return in the past decade.
The AIA predicts that the growth of the internet as a delivery
system and the convergence of financial services will continue
to squeeze property insurers. The industry also needs the flexibility
to adjust exposures for weather-related risks.
The AIA paper cited a number of factors that will shape homeowners
insurance in the near future.
• Demographic changes will increase home ownership but
much of that increase will occur in regions with high risks of
weather-related catastrophes. Mitigation and risk management
will become increasingly important.
• Deregulation and market-based pricing of insurance services
will help the industry but those factors will require education
of the public, regulators and state legislators.
• The internet and e-commerce will continue to intensify
competition, focusing attention on issues such as security and
the legal validity of electronic documents.
• Urban markets will create special opportunities as a
strong economy promotes urban revitalization, high employment
and lower crime rates.
Top ten
time-wasters in corporate America
1. Management by crisis
2. Telephone/e-mail interruptions
3. Inadequate planning
4. Attempting too much
5. Drop-in visitors
6. Ineffective delegation
7. Personal disorganization
8. Lack of self-disciplikne
9. Inability to say no
10. Procrastination
Source: Time Trap by Alec Mackenzie
Managing
office conflict
Conflict may be unavoidable but it cannot be ignored, especially
in today’s workplace. To address conflict among employees,
follow these steps suggested by Colleen McKenna:
Summarize the problem. Let others know that you hear their
frustrations.
Seek common ground. Find a point on which all can agree
and start negotiating from there.
Validate feelings. Acknowledge the reason a person feels
anger or resentment.
Give advice. State suggestions on ways to resolve the
conflict calmly.
How insurers
rank by size
Homeowners insurance is written by more than 1,400 companies
in the United States. State Farm has the lead with 23.4 percent
of the market. The two largest homeowners writers (State Farm
and Allstate) share one third of the market. The five largest
homeowners writers share one half of the market.
The top ten homeowners writers and their market share are:
1. State Farm 23.4%
2. Allstate 11.2%
3. Zurich 7.1%
4. Nationwide Group 4.1%
5. Citigroup 3.5%
6. USAA Group 3.3%
7. Safeco 2.4%
8. Chubb 2.1%
9. American Family 1.7%
10. CGU Insurance 1.7%
Disaster
warnings
The ten most costly disasters in U.S. history
have occurred during the past decade, led by Hurricane Andrew
in 1992 and the Northridge Earthquake in 1994.
In 1998, catastrophe losses reached an estimated $10.1 billion
for the industry, substantially exceeding the average loss for
the decade.
The Insurance Service Office estimates that earthquake coverage
rates should double or triple for homeowners in parts of Missouri,
Illinois, Tennessee, Arkansas, Kentucky and Indiana who live
along the New Madrid Seismic Zone. Seismologists warns that an
earthquake with a magnitude of 6.0 or higher could strike in
the New Madrid fault in the next 15 years.
Challenge
proceeds on Florida rate hikes
Never one to back off from a challenge, Insurance
Commissioner Jim Nelson has asked a court to throw out a Florida
arbitration panel’s approval of a 96% windstorm pool rate
hike. The increase would affect nearly half million Florida homeowners
and levy rate hikes as high as 268% in parts of Dade County and
380% in Santa Rosa County.
Nelson rejected the rate hike as “arbitrary and unconscionable”
and sought a court hearing in December on the fairness of the
computer models used to determine the size of the rate request.
The arbitration panel’s decision cannot be appealed but
Nelson is asking a Circuit Court judge to keep the hike from
going into effect based on what he calls a significant error.
While state law requires the panel to rule on challenges within
90 days under state law, the ruling actually took nearly six
months.
Nelson, who will resign his post later this year to run for the
U.S. Senate, has vowed to “use every legal means available
to protect Florida homeowners from this unconscionable rate hike.”
The commissioner is also proposing legislation that would authorize
the Department of Insurance and state university system to develop
computer models that would be more comprehensive than those that
are currently the industry standards.
A.M. Best’s
outlook is mixed
In its annual review on insurance trends, A.M. Best Company noted
that global competition, changes in the financial industries
and the Internet will have a major impact on the industry in
the coming year. The annual review offers a mixed picture for
insurance company ratings in the near future.
Following are some of the factors A.M. Best predicts will be
significant:
Life insurers will most likely be affected by the financial-service
modernization legislation approved last year. Increased competition
will force companies to work harder to differentiate their services.
Property-casualty insurers will continue to feel the impact of
globalization. Excess capacity in the global market will keep
premiums low and tighten margins for these businesses.
Personal-lines companies will be hard pressed by e-commerce and
Internet-based competition. Independent agents will remain essential
for most in this segment but price competition by virtual companies
will be fierce.
On the bright side, A.M. Best believes the circumstances will
offer opportunities for small companies or those that find new
ways to deliver services.
Insurance CEOs protest Bermuda tax
dodge
A group of insurance executives including The Hartford Insurance
Group and Chubb Corp. are lobbying Capitol Hill to fight what
they believe is unfair competition within the industry. At issue
are the insurance and reinsurance companies that have moved to
Bermuda or have been merged into holding companies based on the
off-shore island.
Bermuda-based companies have full access to the U.S. capital
markets and business opportunities but avoid U.S. income tax
except for the one percent excise tax. They also avoid taxes
on investment income and other revenues that U.S. companies must
pay.
A spokesman for Hartford argued that the non-tax sheltered insurers
are at a competitive disadvantage. While U.S. insurers are taxed
at more than 30% on several levels, the Bermuda-based insurers
manage to dodge everything but the one percent excise tax. Furthermore,
they do not have to pay income tax in Bermuda.
Some of the insurers that have come under the Bermuda umbrella
include Cigna’s personal lines, NAC Re, Everest Reinsurance
Company and White Mountains Insurance Group.
U.S. insurers maintain that the government could dispel the tax
inequity by addressing the offshore tax advantages or lowering
the tax rate for U.S. property and casualty insurers to even
the playing field.
Piles
of files? Escape paper clutter
If the top of your desk looks like Florida after a hurricane,
you’re courting disaster. Being disorganized wastes time
and destroys focus. Organizational consultant Debbie Williams
(www.organizedtimes.com) offers these tips for getting control
of your files before they control you.
Sort through stacks on your desk. You cannot file anything
until you know what is there. Toss anything you haven’t
used in the past year including business papers, personal notes
and publications. Keep only those items that will be useful for
tax purposes or future business reference.
Use files. Before you file, though, remember that 80 percent
of what you file will never be looked at again. Be discriminating
and organize your files into two different types: archives (legal
and tax papers) and current (client information, receipts and
reference materials).
Use organizers. An accordion folder with letters or numbers
lets you place each document in a place where it will get systematic
attention. At the beginning of each month, review all the papers
in your file for attention.
Use digital aides. The folders on your computer take up
virtual space and you look at them only when you need them. Digital
calendars have reminders. Other software can remind you of important
deadlines.
Effective
leaders must be decisive
To take your business where you want to go, you must be able
to delegate quickly, make choices and be willing to accept the
responsibility is something goes wrong. Making even a wrong decision
in a timely fashion is better than indecision because one who
waivers or is reluctant to make choices inadvertently communicates
a lack of concern about a problem.
If you are to be a strong decision-maker, remember these tips:
Don’t put off decisions. Procrastination does not
improve the situation, wastes time and destroys your image as
a leader. If someone above you has to have a part in the decision,
keep your employees informed. Silence will only encourage them
to imagine worst-case scenarios.
Do your research, then decide. Make the best decisions
you can based on what you know. If you have to make a decision
that is unpopular in the short run but the best choice given
the circumstances, accept that role. Effective leaders are not
competing in a popularity contest.
Stay with your decision. If you later see that you made
a poor decision, analyze what went wrong so you can do better
the next time. Accept the consequences and don’t lay blame
elsewhere.
Managing
e-mail abuse at work
There are legal as well as business reasons to address the misuse
of e-mail in the workplace. Last year, Chevron Corporation paid
$2.2 million to employees who were offended by a vulgar interoffice
e-mail. Consider these pointers for establishing an e-mail policy.
Investigate software. Many programs will scan the content of
e-mails to filter out profanity, pornography or language that
could put your company in court.
Write a policy. Update employee handbooks an send out memos to
remind workers that e-mail is owned by the company and subject
to scrutiny. Be clear about the definitions of inappropriate
e-mail.
Deal with personal use. Your employees may have a legitimate
need for personal use of e-mail. Make it clear that such use
should be limited to lunch time or breaks.
Florida
insurers vulnerable to storms
Many Florida insurers are unprepared for the next major hurricane
according to a report issued by A.M. Best. The result could lead
to a crisis similar to that which followed Hurricane Andrew in
1992.
At greatest risks are several Florida-only insurers that rely
heavily on reinsurance and handle some of the riskiest business
in the state. Best cautions that those companies might not survive
a catastrophic storm.
Hurricane Andrew rendered ten insurers insolvent and prompted
some national insurers to pull their Florida business. As a remedy,
the state established a common insurance underwriting association
that relied largely on debt financing to pay claims.
The state has managed to decrease the number in its insurance
association by providing incentives to private insurers to take
the customers. However, Best notes that some of the private
insurers are "meagerly capitalized."
On a more positive note, building and safety codes in the state
have improved dramatically and leading companies have lessened
their catastrophe exposure while still writing insurance in the
state