Insurance

P R A C T I C E A R E A S - I n s u r a n c e

Our insurance practice concentrates on insurance coverage disputes, managed care liability, and defense work. We have experience handling cases in numerous areas of insurance coverage including homeowners coverage, hurricane, windstorm, as well as generally in the areas of property and casualty, automobile, marine, inland marine, all-risk coverage, Jeweler's Block coverage, employment coverages (EPLI), and coverage related to leased employees, disability, ERISA, as well as claims involving areas of health and medical insurance claims. We are prepared to employ the research and effort to afford our clients with insurance coverage opinions that are based upon sound research, logic and assessment of risk. We have experience with subrogation claims and risk management issues in the areas in which we practice. Additionally we are familiar with the overseas insurance markets, and policy structures relating to coverage from most markets. We welcome the opportunity to discuss our ability to be of service to you.

GENERAL INSURANCE INFORMATION

What is Insurance?
Insurance is protection against life's risks. We encounter risks by having families, owning or renting property, driving cars, and running businesses. Generally, the biggest risks are unexpected death, disease, and accident. Without insurance, the cost of any of these risks may wipe out an individual?s or family?s assets. Imagine not having health insurance and having to pay for open-heart surgery. If you're not rich, you're not going to be able to pay the bill.

Insurance is a way to reduce losses and the manner in which it does so is straightforward:

An insurance policy is a contract between you (the insured) and an insurance company (the insurer) to cover a risk or set of risks identified in the insurance contract.
The total cost of the contract is paid for over time in periodic payments called premiums.
Except for life insurance, if the risk you insure against does not occur, you do not get your premiums back. You have purchased insurance against a risk, not opened a savings account.
If the risk occurs, the insurance company pays the amount of the loss up to the dollar limit of the policy minus your deductible. The cost of the loss is likely to exceed the cost of the insurance policy.

State Law
The law of insurance is state-specific. Each state has its own insurance law and department of insurance. State law and state insurance departments protect consumers by:

Approving policy forms
Policing underwriting practices
Reviewing rate hikes
Guarding against unfair practices

Federal Law
There is no federal regulatory insurance law or federal department of insurance, with the exception of employer-provided health insurance and other benefit plans governed by the 1974 Employee Retirement Income Security Act (ERISA). ERISA imposes requirements on employer-provided plans for the protection of the beneficiaries of these plans.

Besides insuring risks, insurance companies are major moneylenders. An insurance company is a financial intermediary between people buying policies and people or businesses seeking to borrow money. Think of an insurance company as a pipe for money. Your money is going in one end, and it is going out the other end to a borrower. But not all of the money flows through the pipe. An insurance company must keep a minimum amount of money readily available (called reserves) to pay off claims.

But like banks and securities firms, insurance companies are major lenders of money to business.

The Insurance Contract
An insurance policy is a contract between the insurance company and the policyholder. Like all contracts, there must be an offer, acceptance and consideration to make a legally binding contract.

The offer is usually the application for insurance.
The acceptance is usually the insurance company's approval of the application and issuance of the policy.

In some instances, an agent of the insurance company can make a binding contract for the insurance company.

The contract is a bargain whereby the policyholder pays premiums to the insurance company and, in return, the insurance company agrees to pay for losses if the loss comes within the terms of the contract. Insurance contracts can cover just about anything. For example, a talented baseball pitcher may insure his arm. If something has value, it can probably be insured. The most common types of insurance contracts are those for life, property, health, and automobiles.

Evaluations of Risk
Generally, an insurance company can choose which risks it wishes to insure by evaluating the insured?s health in the case of a health or life insurance contract, or the location and condition of the property in the case of property insurance. For example, an insurance company may decide not to write flood insurance in coastal areas.

State Limitations
However, many states limit the ability of insurance companies to refuse to insure certain risks. Some examples include:

In many states, insurance companies are prohibited from using race, sex, sexual orientation, or marital status as a basis for determining whether they will insure.
With respect to property insurance, some states have anti-red-lining laws, prohibiting the use of certain economic criteria to deny property insurance coverage.
Some states require insurance companies to insure certain kinds of risks as a condition of doing business in the state.

INSURANCE TERMS

Premiums
The total cost of the insurance contract is paid in installments called premiums. Premiums must generally be paid when due. However, most policies have grace periods for making the premium payment so that they can be paid late without canceling the contract. Some state laws may establish grace periods. If the premium is paid before the end of the grace period, then the contract does not lapse and losses are covered.

Insurance companies determine premiums based upon many factors that may potentially affect risk such as:
The age and health condition of the insured in the case of a life or health insurance policy
The age of the driver and the driver?s accident record in the case of automobile insurance
The location or condition of the property in the case of property insurance
Some states put limits on the use of particular factors in determining insurance rates. For example, a few states prohibit the use of gender in determining the rate for medical or other insurance.

Riders and Endorsements
A rider is an amendment to an insurance contract that restricts, expands, or specifies the coverage of the insurance. A rider may also be called an endorsement. Some examples are:

A rider to a health insurance contract may exclude coverage for a specific pre-existing illness
A rider to a standard homeowner?s policy may expressly include certain specified property such as expensive jewelry or artwork for which the insured must pay an additional fee

Incontestability
Many insurance contracts contain an incontestability clause meaning that an insurance company gives up its right to contest a claim on the basis of a mistake in your application if it has not discovered the error within a certain time period.

The incontestability clause refers to innocent mistakes.
This clause generally does not apply to fraud or to misrepresentations relied on by the insurance company.

Renewal and Cancellation
An insurance company generally can cancel an insurance policy only if:

You fail to pay for the policy
or
If you have lied or made false statements on your application or in a claim you submitted
However, an insurance company can decide not to renew (or non-renewal) your policy for any reason that is not prohibited by law. Some states require that an insurance company have a good reason not to renew.

Automobile Insurance
Automobile insurance is a contract between a policyholder and an insurance company to cover losses arising out of the use and operation of the automobile. Many states require drivers to have automobile insurance. Even if not required, automobile insurance is necessary since the cost of some losses is likely to exceed the net worth of individuals. There are many different types of policies, and policyholders may elect among a number of options when buying automobile insurance.

Automobile insurance considers four primary risks:
Physical damage to your automobile or another person's automobile
Liability for physical injuries to other persons
The cost of your medical care if you are injured in an accident
Attorney's fees if you are sued
Automobile insurance may cover each of these risks; the amount of coverage per claim depends on the dollar amount of the policy. Not having automobile insurance exposes you to tremendous financial risks because of the high costs of property, medical care, and lawsuits.

No-Fault and Fault Systems
Each state has one of two kinds of automobile insurance systems:

No-fault automobile insurance systems
Fault automobile insurance systems
No-fault. In states with no fault automobile insurance systems it doesn't matter who caused the accident. Each insurance company pays for the property damage and medical expenses of its policyholders according to the terms of the policy. If the property damage or medical injury is serious and expensive, the no-fault system may not apply and fault will have to be determined to identify the insurance company that is liable for the loss.

Fault. In states with fault automobile insurance systems , it does matter who caused the accident. Fault is either admitted or proved. Determining fault may involve a lawsuit. The insurance company of the at-fault driver pays the losses of the other driver. The insurance company of the at-fault driver also pays the losses of the at-fault driver according to the terms of the policy.
There are three major types of automobile insurance: collision, liability, and medical expense
Collision covers property damage to your car caused by an accident. It does not cover the other person's car.
Liability insurance covers property damage and personal injury to the other driver.
Medical insurance covers the cost of your personal injury. Your health insurance company also may cover the cost of your medical care resulting from an automobile accident.

Uninsured and Underinsured Motorists
Let's say you're in an accident and the other driver does not have insurance or is underinsured; that is, the insurance does not cover the amount of your losses. What happens?

If you are in a no-fault state, it doesn't matter so long as your insurance policy is adequate to pay for all losses. However, if your losses exceed the value of your policy, then you have a problem.
In an at-fault state, it creates a problem for the innocent driver. There are two ways to solve this problem:

You can buy uninsured motorist coverage from your insurance company to guard against this risk. In this case, your insurance company covers your losses to the extent of the dollar amount of the policy.
You can sue the uninsured or underinsured driver. This method assumes that the negligent driver has assets to cover the cost of the accident. It also involves the expense of hiring a lawyer and possibly going to trial.

Property Insurance
Property insurance is insurance against economic loss to real or personal property. Real property is land and buildings. Personal property is movable goods.

Property insurance has two main functions:

To pay for property damage that takes place as a result of risks included in the insurance policy
In the case of real property, to pay for injuries sustained by other people on the insured property

Property Damage
Property damage may result from fire, flood, or wind. If the insured property is damaged or destroyed, the insurance company covers the loss, unless the loss is excluded. For example, a particular policy on a house may only cover fire. If the house is destroyed by flood, and flood is an excluded risk, the insurance company has no obligation to pay. If the loss is covered, the amount of the payment depends on the estimated value of the property and the terms of the policy. Replacement value policies are those paying the insured the cost of replacing the lost property.

Not all policies are replacement value policies.

Liability Insurance
Liability insurance covers the risk of a person being injured on the insured property. The extent of the coverage depends on the terms of the particular insurance policy.
Homeowner?s Policy
A homeowner's policy is a major type of property insurance. A homeowner's policy covers:

Losses to real property because of fire, lightning, vandalism, windstorms, freezing, and other perils
Losses to personal items in the home damaged or destroyed by theft or the perils covered by the policy
Personal property lost or stolen outside the home such as goods stolen from your car
Most banks require homeowners with mortgages to buy a homeowner's policy to protect the bank's collateral. Banks usually require condominium and co-op owners to purchase homeowner's insurance. Renters may choose to purchase insurance for their personal possessions in case of fire, theft, or other loss.
Homeowner's insurance also provides liability coverage up to the dollar limit of the policy in case a person is injured on the property.

Health Insurance
Health insurance has been defined as an economic device whereby an individual substitutes payment (the premium) for the uncertain financial loss that would occur in the event of an uninsured illness. The goal of health insurance is to minimize individual loss by spreading the risk of medical expenses equitably among all the members in the group.

As the health care delivery system has tried to cope with the rising cost of health care over the last 15 years, health insurance arrangements have undergone many changes in plan structure. As a result, health insurance is provided through a complex system of governmental and private programs.

Medicare
The federal Medicare program, enacted into law in 1965 through the Health Insurance for the Aged Act, is a health insurance program for the elderly and disabled.. Medicare is administered by the Health Care Financing Administration (HCFA). Medicare provides benefits for:

those who have reached age 65 and are entitled to receive Social Security or Railroad Retirement benefits
disabled individuals of any age who have received Social Security or Railroad disability benefits for at least two years
Other Medicare participants may include:
Persons eligible for Social Security benefits who have end-stage renal disease and require kidney dialysis treatment may be eligible to enroll in the Medicare program
Persons over age 65 who are not eligible for either Social Security or Railroad Retirement benefits may purchase Medicare coverage by payment of a monthly premium.

Medicare Reimbursement Programs
Medicare reimburses qualifying health care providers for specified medical services under two separate programs.
Medicare Part A Hospital Insurance Program
This program provides beneficiaries with coverage for mostly hospital-related claims, including inpatient hospital care, limited post-hospital skilled nursing facility and home health care, and hospice care.
Medicare Part B Supplementary Medical Insurance Program
This program focuses on medical costs other than hospitalization. These expenses may include: physician and surgical services and a variety of other items and services such as:

diagnostic tests
home health care
physical, speech and occupational therapy
medical supplies
durable medical equipment
ambulance services
some preventive care services
Enrollment in Part B coverage is optional. Medicare only covers 150 days of hospital services within a single benefit period. Each program requires different deductible and co-payment amounts.

Medicare Exclusions
Medicare contains significant exclusions from coverage. Some of these include:

custodial nursing home care
most outpatient prescription drugs
routine physical examinations
routine eye examinations and eyeglasses
hearing examinations and hearing aids
routine dental services including checkups and dentures
routine foot care and orthopedic shoes
most immunizations
personal convenience items
cosmetic surgery

MedicarePlus Choice Program
As a result of the Balanced Budget Act of 1997, any individual who is entitled to Medicare benefits under Part A and enrolled under Part B, may now choose from several types of health insurance plans under the MedicarePlus Choice program. Under this program, each plan includes Medicare covered services. Available plans include:

Coordinated Care Plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and provider-sponsored organizations (PSOs);
Private Fee-for-Service Plans
Medical Savings Sccounts (MSAs)

Medigap Plans
Medicare supplemental insurance, commonly referred to as Medigap plans, provide coverage for:

Medicare deductible and co-payment amounts
some health services not covered by Medicare
Federal regulations have standardized Medigap policies and provide for the sale of ten Medigap plans offering different levels of coverage. Persons unable to afford the costs of supplemental insurance may qualify for federal assistance. The federal Qualified Medicare Beneficiary program (QMB) and the Selected Low-Income Medicare Beneficiaries program (SLMB) may provide payment for Medicare deductibles and co-payments to qualified individuals.

Medicaid
Medicaid is a jointly-financed federal-state health care program established under Title XIX of the Social Security Act of 1965. Medicaid provides medical assistance to:

low-income elderly
the blind or disabled
families with dependent children
Medicaid is the primary public financing program for long-term nursing home and home care services. Administered at the state level, eligibility requirements vary greatly from state to state.
All states, however, must provide Medicaid coverage to the "categorically eligible."
Categorical eligibility is related to economic need, income, and resources that are below certain levels.
States may also provide Medicaid coverage to the "medically needy," which refers to those who are not categorically eligible, but who incur regular medical expenses that deplete their income to below the eligibility level required for financial assistance. The medically needy are frequently persons in need of expensive nursing home or hospital care.
Generally, Medicaid pays for:
inpatient and outpatient hospital services
prescription drugs
physician services
laboratory and X-ray services
custodial nursing home care
Benefits vary from state to state, and may also provide coverage for:
dental care
medical equipment
foot care
optometry services
clinic services
rehabilitative services
transportation to obtain medical care
The Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) is a federal health benefit program for eligible retired armed forces personnel and eligible family members. The CHAMPUS program is supervised by the National Tri-Care Support Office, which provides a handbook describing program rules and benefits.

Private Health Insurance
The private health insurance system is currently comprised of more than 1500 insurance companies and managed care organizations. Private insurance can either be:

employer-provided group coverage
individually purchased family coverage
The current market for health insurance is complex and offers a wide variety of plans, including the following plans.
Fee-for-service or indemnity plans allow the subscriber to choose any medical provider for health care treatment. Following treatment, the subscriber pays the bill and then sends a claim to the insurer for reimbursement.
Managed care plans provide both insurance and health care services. Managed care promotes more efficient use of medical services by eliminating the incentives provided under the fee-for-service system. In other words, instead of paying every time a medical service is delivered, managed care members pay a fixed monthly fee for health care, regardless of the amount of care needed. In addition to providing coverage for the standard types of medical expenses, managed care programs also offer coverage for a variety of preventive services.
Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are among the most common managed care plans.
HMOs generally require members to use their contracted physicians and facilities. Some HMOs have Point of Service (POS) options allowing members to utilize medical providers outside the plan?s network and still qualify for partial reimbursement.
PPOs generally require that members utilize the medical providers within the plan?s network. However, members are allowed to consult with providers outside the network, but will incur higher out-of-pocket costs.
Self-funded or self-insured plans are frequently employer-provided health plans whereby companies insure their own workers instead of buying protection from insurance companies. Unlike traditional plans or managed care plans established by insurance companies which are subject to federal and state regulation, self-funded plans are governed by the federal Employee Retirement Income Security Act of 1974 (ERISA). While ERISA provides certain protections to health plan beneficiaries, it may also prohibit states from imposing certain benefit requirements upon employers providing health benefits through self-insured plans. An estimated 55 million people are covered by companies that self-insure.

Private Health Insurance Benefits
Health insurance plans contain various benefit provisions for hospitalization, surgery, basic benefits, major medical, durable medical equipment, and for the treatment of mental and emotional illnesses.

Hospital-surgical benefits cover inpatient hospital services and surgical procedures, including the cost of diagnostic tests, nursing care, and room and board.
Basic benefit provisions may cover specific medical tests, ambulance service, and oxygen.
Comprehensive or major medical benefits cover both inpatient and outpatient physician and hospital services not covered under the basic benefits portion of the health plan.
Health insurance plans may also include separate riders providing coverage for items such as prescription medications, eyeglasses, and other benefits.

Private Health Insurance Restrictions
In addition to deductibles and co-payments, health insurance policies may contain other restrictions.

Covered medical treatments or services are generally subject to the condition that the treatment must be medically necessary. Thus, the insurer may deny payment for care determined to be medically unnecessary, as defined by the insurer such as experimental or cosmetic treatments.
Expenses are limited to reasonable and customary charges, generally determined by statistical analysis of physicians? charges for particular procedures within a specific geographic area.
Pre-existing conditions are health problems that have been diagnosed or treated prior to the effective date of the insurance and frequently require waiting periods before coverage is allowed. Additionally, there may be restrictions on the ability to renew a policy following the end of a coverage period (generally one year).
Federal Laws Regulating the Provision of Health Insurance
Federal laws provide for extending health insurance coverage in certain circumstances. The federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) allows for the continuation of health insurance benefits for up to 18 months for eligible employees and for up to 36 months for their eligible dependents for certain qualifying events.
A qualifying event is the reason for which a COBRA extension is required and may include:
loss of health insurance coverage due to termination of employment or reduction in hours, divorce, or death of the employee
a child reaches the age at which they are no longer eligible for health insurance under their parents? policy
The monthly premium for COBRA coverage is based on 102 percent of the individual?s current premium cost.
The federal Health Insurance Portability and Accountability Act of 1996 (HIPA) makes health insurance available to individuals when changing jobs. HIPA imposes limitations on insurers for exclusions based on pre-existing conditions and ensures that an eligible individual is not denied enrollment because of health status, claims history, medical history, or genetic information.

Life Insurance
Life insurance generally provides:

A safety net for a person who has dependents
or
A stream of income
A person may obtain life insurance individually or through a group. Group life insurance covers multiple persons such as all employees of an employer or all members of a union. The group purchases the insurance policy on behalf of its members. There are few practical differences between individual and group life insurance.

Beneficiary
An insured selects a beneficiary to the life insurance policy. The beneficiary of the policy is the person named in the insurance contract who will be paid the benefits of the policy.

Usually but not necessarily, the beneficiary is a relative or person close to the insured. For example, a corporation may take out a life insurance policy on the life of an important executive to protect against the losses it would suffer if the executive suddenly died.
A beneficiary has rights in the insurance policy until another person is named as the beneficiary. For example, if a person names a spouse as a beneficiary and later gets divorced, the divorced spouse has rights in the policy until the insurance policy is amended to name a new beneficiary.

Underwriting
Underwriting an insurance policy is the process of approving an application for life insurance. This decision is based on many factors, however, an insurance company can deny an application for any legal reason. The decision to approve an application and to determine its cost depends mainly on the risk category of the applicant. Risk considerations include the applicant?s:

Age
Condition of health
Income
Health habits
Marital status
Number of children
The higher the risk classification, the higher the premium. Applicants with certain conditions may find it difficult, more expensive, or impossible to purchase life insurance. For example, a person with a past history of cancer or AIDS may not be able to purchase life insurance.
Types of Life Insurance
There are many varieties of life insurance: term, whole, universal, and variable life to mention a few. These policies satisfy the diverse needs of consumers shopping for premium rates, various payment options, and differing levels of risk. The most basic types of life insurance are term and permanent life insurance.
Term Life Insurance. Term life insurance is bought for a short and specific period of time such as one year or five years. The insured pays a fixed premium or increasing premium for the period of the term. For example, an insured may pay a premium of $150 per year for five years for a $100,000 death benefit policy. In return, the insurance company agrees to pay the $100,000 death benefit to the named beneficiary if the insured person dies during the term of the policy. If the policy matures, and the insured has not died, the insurance company does not make any payment. Key features of term life insurance include:
A term life insurance policy does not build up any cash value.
It is not an asset of the insured.
The insured cannot surrender the policy early and withdraw any cash.
Permanent Life Insurance. By contrast, permanent life insurance covers the person for life and builds cash value. The simplest form of permanent life insurance has fixed premiums and a fixed death benefit. Key features of permanent life insurance include:
Permanent life insurance is an asset.
The insured person has access to the built up cash value of the policy during the policy period.
The policyholder can borrow against the policy or withdraw part of the cash value without losing the death benefit.
The insurance company pays the death benefit to the named beneficiary upon the death of the insured.
If the insured outlives the policy, the insurance company pays the benefit to the insured person.
Insurance companies offer several permanent life insurance products such as:
Whole life insurance
Universal life insurance
Variable life insurance
These products offer various premium payment schedules, dividend payments, and interest rate-sensitive policies to fit the varying needs of consumers. The types of insurance available, their costs, and their benefits to individual consumers vary from company to company.

Filing a Claim
Payment of claims is the reason people buy insurance. The payment of a claim is determined by the terms of the insurance contract. If the loss is covered and the insured person has complied with the contract, then the insurance company has an obligation to pay the claim. The actual process of reporting and collecting on a claim is usually spelled-out in the insurance contract. Thus exact procedures vary according to insurance contracts and their companies.

However, insurance policies generally require that the insured person promptly report the loss to the insurance company.

In the case of a theft, the insurance company may require a police report to verify the incident.
In the case of life insurance, the insurance company may require a death certificate.
In the case of a liability claim, the insurance company may require the submission of any notice, letter, or legal papers received by the insured person.

Virtually all liability and property insurance contracts require that the insured cooperate in the investigation, negotiation, and settlement of claims.

Insurance Company Good Faith
The law imposes on insurance companies the duty to act in good faith and to deal fairly with the insured person. This means that when a person files a claim of loss, the insurance company cannot make up a reason to deny the claim or look for ways to escape its obligation to pay. The insurance company must fairly determine the eligibility of the claim for payment.

Another protection to insureds and beneficiaries in interpreting insurance policies is the rule concerning ambiguities. If there is a question concerning what is covered under an insurance policy or what the various terms mean, the courts will interpret confusing, complicated, or ambiguous contract terms against the insurance company to give the insured person coverage.

OSHEROW, SHINER & ASSOCIATES, P.A., BOCA CORPORATE PLAZA, SUITE 650, 7900 GLADES ROAD, BOCA RATON, FLORIDA 33434
TELEPHONE: (561) 477-5054 FACSIMILE: (561) 477-3661 www.osherowlaw.com E-MAIL: mrosh@osherowlaw.com