Redlining

Last week I promised a post somewhat related to Martin Luther King jr. and the Civil Rights Movement. There is so much information available on the topic I had in mind that it's been hard to provide a concise and insightful post on it. I suppose that's a great argument for why you should be a member of the library -- then you could borrow all of our resources and become an expert on the subject yourself!

When I tried to come up with an insurance topic related to the holiday, the first one that came to mind was Redlining. According to the IRMI Glossary of Insurance and Risk Management Terms it is:

An underwriting practice involving the rejection of a risk based solely on geographical location. This practice is prohibited under the laws of most states as it tends to be discriminatory to minorities.

The practice of redlining began in the 1930s though the term wasn't used until the 1960s (if wikipedia can be believed). It literally refers to the red lines that used to be drawn on maps used for property loans. Below you can see an example of a similar map of Philadelphia:

If you click on the map, you will be transferred to the UPenn website on redlining where you can click on different locations on the map and zoom in to see what it says (this is all courtesy of the Free Library of Philadelphia Map Collection). The insurance industry adopted a similar stance to that of banks and as a result it was difficult to get insurance in certain urban areas. In 1968 the President's National Advisory Panel on Insurance in Riot Affected Areas examined the ill effect that not providing affordable insurance just based on locality was having on communities. A 1979 publication entitled Insurance Redlining: Fact Not Fiction, describes the issue by saying:"The problem of insurance unavailability is not one that randomly affects isolated individuals but rather strikes at residents of older urban communities. Insurance unavailability threatens the viability of entire communities."

The result of the 1968 examination was the establishment of Fair Access to Insurance Requirements or FAIR plans. As Gregory D. Squires says in Insurance Redlining: Disinvestment, Reinvestment, and the Evolving Role of Financial Institutions, "I have often referred to the issue of insurance redlining as the ugly duckling of the fair housing movement." The Fair plans established in the early 70s required inspection of properties to determine their risk level and provided minimal standards of insurance for hard to place risks.

In the years that followed that initial study, many states also adopted anti-redlining legislation. "The State of Missouri enacted one of the earliest antiredlining laws" in 1977, according to Insurance Redlining: Fact not Fiction. The National Association of Insurance Commissioners added an antiredlining section to their recommended Unfair Trade Practices Act in 1978. Their reasoning, explained in the 1978 NAIC proceedings was that

It is the position of the NAIC that the insurance industry has been perceived
to be redlining, and the perception can only be altered by implementing such
practices as stating exact reasons for rejections, cancellations and
nonrenewals. The insurance industry should also abandon underwriting
"short-cuts" such as refusing to accept an application solely because the
applicant was refused coverage by another carrier.

While I would like to report that the threat of redlining has been completely eradicated, there have been well publicized cases regarding redlining filed by the NAACP as recently as the 90s. Still, I hope that Martin Luther King would be proud of the progress that has been made.

If you'd like more information on the history of redlining, we have the items cited in this post, as well as Regulatory Challenge Business Principles Versus Social Pressures (an analysis of property and casualty insurance regulation) by Conning and Company; Problem of Property Insurance In Urban America, a Hearing Before the Subcommittee on Housing and Urban Affairs; Full Insurance Availability: Department of Housing and Urban Development and Fairness and Balance in Residential Property Insurance: A National Survey of Homeowners Attitudes. We've also got journal articles discussing redlining.

What Are You Doing For Others?

We hope that you're out volunteering in honor of Martin Luther King Jr. Day. We'll just assume that's where you are and that's why you won't have time to read a blog post today anyway. We promise an MLK appropriate post by the end of the week.

Insurance Rebating

I have mentioned before that I like sales. I brave the crowds on the day after Thanksgiving, I Google coupon codes before buying anything online and I cut upc codes off boxes and send away for my manufacturers rebates. There's one kind of rebate I don't take advantage of though, and that's insurance rebating; it's illegal.

Recently, we were asked what the definition of rebating is in Massachusetts. The International Risk Management Institute (IRMI) has a general definition in their Glossary of Insurance and Risk Management Terms. As far as I know there isn't an exact definition in the Massachusetts code. There are guidelines to help determine whether something is rebating. For example, the law doesn't address allowing customers to pay their premium via credit card although they may get airline miles or other incentives from their credit card company by doing so. As the incentive is not being offered by the agent, but by the credit card company, this may well not be considered rebating. The law doesn't specifically say that you can't offer Red Sox tickets to customers who go with a particular insurance company, but you can't. It's considered a special inducement which is prohibited. If a specific issue arises in this context, an opinion can be requested from the Massachusetts Division of Insurance.

Chapter 176D entitled: UNFAIR METHODS OF COMPETITION AND UNFAIR AND DECEPTIVE ACTS AND PRACTICES IN THE BUSINESS OF INSURANCE covers this topic. Specifically section 3 subsection 8:

Rebates: Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any insurance contract, including but not limited to a contract for life insurance, life annuity or accident and health insurance, or agreement as to such contract other than as plainly expressed in the insurance contract issued thereon, or paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance or annuity any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract; or giving, or selling, or purchasing or offering to give, sell, or purchase as inducement to such insurance contract, or annuity or in connection therewith, any stocks, bonds, or other securities of any insurance company or other corporation, association, or partnership, or any dividends or profits accrued thereon, or anything of value whatsoever not specified in the contract.

Massachusetts was the first state to enact an anti-rebating law (it was promulgated in 1887, coincidentally the same year our library started). The current Massachusetts law is based on the National Association of Insurance Commissioners model "Unfair Trade Practices Act." Massachusetts is not the only state to have adopted an anti-rebating stance. At one point, every state had an anti-rebating law (according to the 1946 NAIC Proceedings). Currently, most states still have insurance anti-rebating laws.

Some states have looked at the constitutionality and effect of the laws, especially since a number of consumer groups have questioned their use. Thus far, the only two states that I can find without anti-rebating laws are California (in 1988 a vote for proposition 103 repealed the anti-rebating law they had previously) and Florida repealed theirs in the 1980's when their courts ruled it unconstitutional.

Back in 2006 Massachusetts had an informational Hearing on "marketing practices" but doesn't appear to have followed up with a bulletin or significant change to their law. More recently, New York felt that their anti-rebating law was not descriptive enough and in 2009 they issued a circular letter "to provide guidance and clarification to licensed insurance agents and brokers (collectively, “insurance producers”) as to what kinds of services (often referred to as “value-added” services) may be provided to insureds or potential insureds without running afoul of the rebating and inducement provisions set forth in the New York Insurance Law." Insurance anti-rebating laws continue to be a topic of interest and if anything groundbreaking happens regarding them, we'll try and post an updated blog post on them.

Truth is Better than Fiction

In this case, the truth is the library has started an insurance fiction collection. The University of Connecticut School of Law is already ahead of us in this respect, but we're starting to play catch up. Our Director, Jean Lucey, has wanted to start a fiction section since Sue Grafton's mystery series starring Kinsey Milhone, former investigator for California Fidelity Insurance, came out. Last Christmas she got her wish when all of the "alphabet series" was added to the collection (U is for Undertow had just been published).

This year, a few more books were added to the collection including, The Pale Green Horse, Horse Sense, Bet Your Life and Bringing Back Eight: A Novel about Medical Malpractice on Trial. We've also added our first dvd to the collection, Memento. We encourage you to come in and read or check out some of our newest additions.

If you have suggestions for the fiction section, we welcome your feedback (either via a comment on this blog post or email). We also welcome donations either to our fiction section or to our general collection. If you're looking for ideas on books that we're especially interested in, please peruse our amazon wish list.

The Whole Pie

The Massachusetts Attorney General publishes a Report on Professional Solicitations for Charities annually. This year's report has caused a stir (at least in the Boston Globe) since it reports that charities received only 43% of the money that was raised; the rest went to the professional fundraisers.

Last year New York's Attorney General brought a case against four professional fundraising telemarketers who employed deceptive and unfair tactics. These deceptive tactics included in some cases lying about how much of the money the charity would receive. It turned out, on average, these professional fundraisers were keeping 76% of the money they raised.

All is not lost though, there are various ways that one can determine the amount a charity will receive. Sometimes this information is right on the charity's website. You can also ask for the information from the telemarketer in writing. Finally, checking to see if the fundraiser is a member of the Association of Fundraising Professionals can help. This association has a code of ethics to which they ascribe.

Another way to determine generally how much of the money you give to a charity goes toward furthering their mission is to check a website like Charity Navigator. It will give you and idea of the charity's organizational efficiency, organizational capacity as well as an income statement usually including how much the ceo is paid.

We thought that this might be a timely post considering the recent series of Boston Globe articles on the topic. We want to assure you that our library does not use professional fundraisers. As we mentioned in a past post, we are a non-profit and there are a number of ways that you can donate to the library before the end of the year. The most direct way is probably through our annual fund, which you can donate to by clicking here.

Burning Interest in Punitive Damages

In Massachusetts yesterday a jury awarded 71 million dollars when they found a tobacco company liable for the death of Marie Evans. The full story can be found in the Boston Globe, among other places. It turns out that the tobacco company in question, "Lorillard had never lost a case brought by an individual before yesterday" While the tobacco company is appealing the case, there is speculation that more cases may follow as a result of this one.

Apparently "the verdict sets up a second phase of deliberations in which the jury could also award Evans’s estate and family punitive damages, which often are a multiple of the amounts awarded in the compensatory phase." Insurance coverage for punitive damages is actually an interesting topic. By interesting, I mean it is a topic that is worthy of many articles full of discussion as well as a few books. Clearly we don't have the space to explore all of the ramifications here in a little blog post, but a section from The Thomson West Publication: Punitive Damages Law and Practice by John J. Kircher and Christine M. Wiseman sheds some light on how convoluted a topic it is.

The question of insurance coverage for punitive damages continues to plague the courts, insurers, and insureds. The trend appears to favor finding coverage, but the decisions have not persuasively decided the issue. In fact, they have more recently enhanced the controversy by positing additional arguments both in support of and in opposition to coverage. (pp 7-38-7-39)

They go on to discuss the reasoning behind punitive damages and explore whether insurance coverage hinders those motives:

In most jurisdictions, punitive damages are intended to be awarded not to compensate the injured, but to punish the wrongdoer and to deter the wrongdoer and others from similar egregious conduct. Once it is determined that punitive damages are covered by the policy terms, courts then face the issue whether coverage would frustrate the public policy involved in the punishment and deterrence considerations of the punitive damages. (pp 7-42-7-43)

If you're interested in more information on punitive damages or products liability, please feel free to email the library with your specific question or stop by and check out our collection.

Vertically Challenged

We noticed in the stats section of our blog, that some people had happened upon our blog using the search terms "vertical liability." Turns out we're third from the top on the Google search for that term because of our brief post on products liability where we mentioned that we had vertical files with subject information.

Unfortunately, I am not sure exactly what the searchers were looking for. The term vertical liability is not, as far as I know, standard language in insurance. One possibility for what might be of interest is supply-chain liability. In other words, what is the liability for the person up or down the chain if there's been a loss at some point in the chain. While I am sure we could provide more information on the topic, if pressed, it seems like the best plan is to try and avoid losses like this in the first place. As it says on the Risk and Insurance Management Society website: "supply chain management can stop supplier issues from becoming your own." To this end, Risk Management Magazine published an article in their April edition titled: How Spend Analysis Can Reduce Supply Chain Risk: Domino effect They also had a great article in August of 2008 entitled: Understanding Supply Chain Risk which included helpful flow charts.

Another possible topic of interest might have been vertical exhaustion of limits which has to do with the interaction of primary policies and excess or umbrella insurance policies. Vertical exhaustion of limits is described in a July 2002 article in Defense Counsel Journal as such: "vertical exhaustion allows an insured to seek coverage from an excess insurer as long as the insurance policies immediately beneath that excess policy, as identified in the excess policy's declaration page, have been exhausted, regardless of whether other primary insurance may apply." It turns out that vertical exhaustion of limits is actually somewhat controversial. Most case law appears to support horizontal exhaustion of limits, which requires exhausting the limits of ALL primary insurance which might apply before an insured can turn to his excess policies. The Defense Counsel Journal article described above and entitled Excess-Primary Insurer Obligations and the Rights of The Insured by Thomas M. Hamilton and Troy A. Stark addresses this issue quite well. For more up to date information on the topic, you might try getting your hands on a Donald Malecki article from the December 2008 edition of Malecki on Insurance entitled Horizontal Versus Vertical Exhaustion of Limits (found in a subscribers forum issue). He provides case law from 2007 and 2008 on the topic as well as his expert opinion.

While we'll continue to look at the stats for possible areas of interest, we also welcome suggestions for future blog posts. You can email the library or post a comment!