Producer Licensing: An Update
By Kevin G. Fitzgerald
Uniformity and/or reciprocity for producer licensing has long been a goal of the National Association of Insurance Commissioners (NAIC) and its member states. Unfortunately, it has been somewhat challenging to achieve meaningful uniformity and reciprocity in a number of areas and much that has been achieved was only due to the threat of federal intervention. Nonetheless, there are a number of new initiatives underway that seek greater uniformity and reciprocity. As to the likelihood of success for these various initiatives, it is simply too early to tell.
Before evaluating the various initiatives, it is helpful to understand a few key concepts with regard to producer licensing. The concept of uniformity relates to resident licensing. For example, if an individual seeks his or her initial (home state or resident) license in state X, will the licensing process be the same as if he or she lived in state Y? The NAIC has adopted 37 Uniform Resident Licensing Standards (Standards) that focus on eight broad areas, including: (1) licensing qualifications; (2) pre-licensing education; (3) licensing testing; (4) integrity/background check standards; (5) license application process; (6) appointment process; (7) continuing education requirements; and (8) limited lines.
Reciprocity, on the other hand, addresses non-resident licensing. Once licensed in his or her home state or resident state, can the producer easily and efficiently obtain non-resident licenses in the remaining jurisdictions? The NAIC has identified four conditions that a state must satisfy in order for the state to be considered “reciprocal.”1
The original push for uniformity and reciprocity came to a head in the late 1990s with the enactment of the Gramm-Leach-Bliley Act (GLBA) and its threat to regulate producer licensing through the creation of a National Association of Registered Agents and Brokers (NARAB) if greater state producer licensing uniformity or reciprocity was not developed. In an effort to preserve state regulation, the NAIC worked to increase licensing reciprocity through promulgation and widespread adoption of the Producer Licensing Model Act (PLMA) beginning in 2000. By 2002, the requisite number of jurisdictions adopted sufficient portions of the PLMA to avoid the NARAB trigger under GLBA.
In 2007, the NAIC identified producer licensing reform as one of its key strategic issues. As a result, the NAIC conducted a national, comprehensive, producer licensing assessment, discussed in Section I below, and issued the NAIC Producer Licensing Assessment Aggregate Report of Findings (Report). Following the release of the Report, the NAIC Executive Committee reconstituted the NARAB Working Group (see Section II) and the NAIC Producer Licensing Working Group, through a sub-group, began working on a Producer Licensing Handbook (see Section III). But the NAIC is not alone in these efforts. The National Conference of Insurance Legislators (NCOIL) also has stepped in to the fray (see Section IV), and the federal government also may become involved again (see Section V).
I. NAIC Producer Licensing Assessment Aggregate Report of Findings
On February 19, 2008, the NAIC Producer Licensing Working Group (PL Working Group) released its comprehensive assessment of the producer licensing laws, practices, and processes throughout the United States. The Report focuses on the reciprocity and uniformity — or lack thereof — that currently exists across the 50 states, the District of Columbia, and Puerto Rico. It serves as a snapshot of the nation’s producer licensing regulation, highlighting areas where uniformity and reciprocity is found and pointing out not only where uniformity or reciprocity is lacking, but also providing suggestions for overcoming roadblocks to increased interstate consistency.
The assessment team — volunteer insurance regulators, including commissioners, directors, superintendents, senior regulator staff, and licensing directors — visited all 52 jurisdictions over a short three-month period. The Report serves as an independent legal review and on-site peer assessment of all U.S. producer licensing laws and practices.
The Report contains notable findings regarding the following issues:
In completing the 53-page Report, the assessment team noted issues worthy of consideration by future multi-jurisdictional assessment endeavors. The final section of the Report contains a discussion of those issues, including a discussion of issues now ripe for attention by state insurance commissioners and superintendents.
II. NAIC NARAB (EX) Working Group
Following the issuance of the Report, the NAIC Executive Committee reconstituted the NARAB (EX) Working Group (NARAB Working Group), which held its first meeting on March 31, 2008. The NARAB Working Group has been given three charges by the Executive Committee:
The goal is to complete charges one and two by the summer NAIC meeting and charge three by the fall NAIC meeting. Whether the NARAB Working Group will be able to complete these tasks in the time recommended is uncertain. Regardless, state implementation of any recommendations relating to business entity licensing arising from charge three above may take years to be broadly adopted by a substantial number of states.
III. NAIC State Producer Licensing Handbook
On February 29, 2008, the NAIC issued a first draft of the NAIC State Licensing Handbook (Handbook). This Handbook is primarily the work of Roseanne Mead of Iowa and is intended to be adopted by the PL Working Group after comments have been received.
The Handbook is intended to be a single source of information relating to the PLMA and producer licensing in general. It will provide meaning to, and gather relevant information concerning, the PLMA and the Uniform Resident Licensing Standards. For example, pages 20 – 21 of the Handbook include a table that restates the Implementation Guidelines of the PLMA dated August 27, 2000, which provide examples of licensable agent acts versus non-licensable clerical acts.
The Handbook comprises three main parts: Insurance Producer Licensing, Miscellaneous Licenses, and a Glossary. Many of the chapters of the Handbook have best practices that generally show how uniformity and/or reciprocity can be improved. In that sense, it is similar in some respects to the work of the NARAB Working Group discussed in Section II above.
The National Conference of Insurance Legislators (NCOIL) also has weighed in on the topic of improving the producer licensing system. NCOIL is an organization of state legislators whose main area of public policy interest is insurance legislation and regulation. NCOIL oftentimes works in tandem with the NAIC on issues of importance, although on occasion, NCOIL and the NAIC have had substantive disputes on issues.
On March 1, 2008, NCOIL adopted a Resolution in Support of the National Insurance Producer Registry (NIPR)2 and urged all states to implement NIPR services fully in an attempt to eliminate unnecessary hurdles in producer licensing. The resolution provides, among other items, that NCOIL:
Virtually all of the producer trade associations such as the Independent Insurance Agents & Brokers of America (IIABA), National Association of Health Underwriters (NAHU), National Association of Insurance and Financial Advisors (NAIFA), and the National Association of Professional Insurance Agents (PIA) supported the NIPR resolution.
The resolution was adopted a day after NCOIL met with NAIC representatives to discuss the Report (covered in Section I above).
V. All for Naught? NARAB II
Despite the widespread adoption of many of the provisions of the PLMA, there have been rumblings for some time that the hoped-for uniformity was never fully recognized. These rumblings have now been brought back to the fore, with the introduction of a national producer licensing initiative dubbed “NARAB II.” This new legislation was introduced in the U.S. House of Representatives on March 13, 2008, with a bipartisan proposal, H.R. 5611 (Bill), sponsored by Rep. David Scott (D-Ga.) and Rep. Geoff Davis (R-Ky.).
The Bill would again create a NARAB — a private, independent, non-profit corporation existing under District of Columbia law — but this time contains no escape hatch, even if greater uniformity and/or reciprocity is attempted by state regulators. If enacted, the Bill is only intended to create true licensing reciprocity for those insurance producers who conduct business in multiple states. States would still retain authority to regulate marketplace activity and enforce consumer protection laws. Furthermore, the Bill only displaces the state licensing system outside of a producer's home state (i.e., generally the producer’s resident state). As such, it generally applies only to non-resident licensing and does not affect resident licensing.
A release issued by Reps. Scott and Davis indicates that they believe that passage of the Bill would lead to increased competition among producers and thus benefit consumers through greater consumer choice. Small businesses — specifically insurance brokerages and agencies —also are expected to benefit from the streamlining of the non-resident licensing regulations.
Under the legislation, producers would become eligible to join the NARAB by holding (or obtaining) a home state license. Once a member, they would obtain authority to “sell, solicit, negotiate, effect, procure, deliver, renew, continue or bind insurance” in any state for the same line or lines of insurance covered in their resident license. The only prerequisite would be that they pay non-resident licensing fees to the NARAB, which would be remitted to the appropriate non-resident states. No state, except for the producer’s home state, would be allowed to deny a license to any NARAB member in good standing or require a NARAB member to obtain a business entity license or membership. However, all states (both resident and non-resident) would still have authority to regulate market conduct and enforce consumer protection laws.
The Bill leaves the development of further criteria for membership to the NARAB Board (Board). In this regard, the Board would generally have the power to establish standards regarding personal qualifications, continuing education, training, and experience. In establishing the membership criteria, the Board would be authorized to draw from relevant state licensing laws regarding insurance producer qualifications and could deny membership in instances where a producer’s resident license had been suspended or revoked during the preceding three years or where information obtained from a national criminal history record check indicated that membership should be denied. Finally, NARAB membership also would be conditioned upon continuing education requirements comparable to those used by a majority of the states. NARAB members would be exempt from non-resident states’ continuing education requirements and the bill contains provisions designed to prevent duplicative continuing education requirements between the NARAB and a producer’s home state.
Chartered as a non-profit organization, the NARAB would be overseen by a board of nine members, including four state insurance commissioners, three members appointed by insurance producer trade associations, one member appointed by property/casualty trade groups, and one member appointed by life and health trade groups. The NARAB would not be part of any federal agency, report to any federal agency, or have any federal regulatory power.
As opposed to some of the more broadly sweeping proposals regarding federalization of insurance regulation, this Bill is limited to the narrow area of uniformity in non-resident producer licensing. The Bill’s narrow focus makes it one to watch, as it may have a greater likelihood of enactment when compared to broader — and therefore more controversial — nationalization efforts.
The challenge of greater uniformity and reciprocity for producer licensing still exists, but as can be seen here, the regulators (1) are aware of many of the issues, and (2) are attempting to implement changes to increase uniformity and reciprocity. Nonetheless, there remains, at least for now, the threat of possible federal intervention on these issues.
(1) Permit a producer with a resident license for selling and soliciting insurance in its home state to receive a license to sell or solicit the purchase of insurance as a non-resident to the same extent that the producer is permitted to sell or solicit insurance in its home state, if the home state also licenses reciprocally, without satisfying any additional requirements other than submitting (a) a request for licensure; (b) the application for licensure submitted to the home state; (c) proof of licensure and good standing in home state; and (d) payment of any requisite fee.
(2) Acceptance of a producer’s satisfaction of its home state’s continuing education requirements as satisfying that state’s continuing education requirements, provided that the home state recognizes continuing education satisfaction on a reciprocal basis.
(3) No requirements are imposed upon any producer to be licensed or otherwise qualified to do business as a non-resident that have the effect of limiting or conditioning that producer’s activities because of its residence or place of operations (excepting countersignature requirements).
(4) Each state meeting (1), (2), and (3) grants reciprocity to residents of all other states that satisfy (1), (2), and (3).
2 NIPR is a non-profit affiliate of the NAIC that administers the Producer Database (PDB) and provides for electronic appointments and terminations in an effort to bring electronic licensing efficiency to producer licensing.
A Paperless Property and Casualty Industry: Are We There Yet? A Look at the Intersection of ESIGN and the Uniform Electronic Transactions Act
By Thomas R. Hrdlick and A. John Richter
For American commerce, there are myriad potential benefits of going paperless: faster transactions, increased quality control, decreased environmental impact, and, of course, cost savings, just to name a few. To achieve these potential benefits however, American industry requires a legal construct for electronic transactions that is both uniform and predictable. With these goals in mind, beginning in or around the 1990s, many American industries pushed state and federal lawmakers to craft legislation to facilitate wholly electronic transactions.
Several states responded by initially passing their own homegrown electronic contracting laws, but the result was a confusing patchwork of approaches that did not facilitate a uniform and predictable approach to electronic commerce. In an effort to address this lack of uniformity, the National Conference of Commissioners on Uniform State Laws (NCCUSL) issued the Uniform Electronic Transactions Act (UETA) in July 1999.
The initial reaction to UETA was relatively positive, with many states quickly moving to adopt it in either its pure or slightly modified form. Nonetheless, some states did not enact UETA at all, and others such as New York, California, Illinois, and Washington, adopted it in a highly modified form. It soon became clear that UETA may not provide the uniformity and predictability for which many had hoped. At that point, Congress weighed in and passed the Federal Electronic Signatures in Global and National Commerce Act (ESIGN), which became effective in October 2000.
ESIGN was largely based upon UETA and some believe that it was drafted as a gap-filler for use until UETA was more broadly and uniformly adopted by the states. To that end, ESIGN preempts all state laws that place contrary procedures or requirements on electronic transactions, but expressly carves out “pure” UETA statutes from its preemptive effect. The goal seemed simple enough: Achieve uniformity and predictability by allowing UETA legislation to operate where it has been adopted and have the similar ESIGN legislation fill in the blanks where it has not.
That simple goal has not been realized. The interaction between ESIGN and UETA gives rise to various legal ambiguities that complicate matters for businesses looking to conduct paperless transactions. This article will briefly summarize some of those ambiguities and the impact they may have on the ability of the property and casualty (P&C) insurance industry to conduct business in a completely paperless fashion. The first two sections provide a broad-strokes review of UETA and ESIGN. The third section highlights some of the ambiguities and problems the P&C industry faces in going paperless and the fourth section poses some potential solutions.
UETA applies to “electronic records” and “electronic signatures” related to a “transaction.” Essentially, under UETA, a record, signature, or contract may not be denied legal effect or enforceability due to its electronic form or due to the fact that an electronic record was used in its formation. Similarly, if a law requires that a signature or a record be in writing, an electronic signature or record suffices.
UETA does not, however, mandate the use of electronic signatures or records; it applies only where parties have agreed to conduct a transaction electronically.1 If the parties have agreed to transact electronically and a law requires that one party send information in writing to another, UETA allows that information to be sent in an electronic record that is “capable of retention by the recipient.” The “capable of retention” requirement is not fulfilled if the sender inhibits the recipient’s ability to print or store the electronic record. Should the sender do something to inhibit the recipient’s retention, the record would be unenforceable against the recipient.
While supplanting many contrary state law requirements, UETA expressly preserves many others such as posting or display requirements, method of delivery requirements, and formatting requirements. Furthermore, UETA does not apply to transactions that are governed by the Uniform Commercial Code, the Uniform Computer Information Transactions Act, laws for creation/execution of wills, codicils, or testamentary trusts, or any other laws specifically identified in a particular state’s UETA statute.
ESIGN, like UETA, applies to electronic records and electronic signatures related to a transaction. It defines these terms in essentially the same way UETA does, but ESIGN contains a jurisdictional trigger stating that the “transaction” must be in or affecting interstate commerce. Subject to several exceptions, ESIGN preempts any contrary state or federal laws. With regards to the insurance industry, ESIGN expressly states that it applies to the business of insurance, so as to avoid any McCarran-Ferguson Act reverse-preemption issues.
Like UETA, ESIGN ensures that signatures, contracts, or records relating to a transaction may not be denied legal effect due to their electronic form, provided that any such electronic record is capable of being retained and accurately reproduced for later reference. ESIGN allows, in cases where a signature or record must be notarized, for the notary to submit his or her signature electronically as well. If a law requires that a consumer be given information related to a transaction, an electronic record may be used if the consumer consents after being provided certain disclosures and related information. This consumer notice requirement is unique to ESIGN; there is no similar requirement in UETA.
ESIGN also contains a greater number of exceptions to its application (nine in total) than does UETA. These exceptions range from documents required to accompany the transportation/handling of hazardous materials to notices for cancellation of health or life insurance (although not P&C insurance).
ESIGN is intended to preempt any state law that has the effect of modifying, limiting, or superseding the requirements or procedures contained in ESIGN. ESIGN recognizes only two exceptions to its broad preemptive effect: (1) a state adopts UETA in its pure form, or (2) a state adopts an alternative act that is consistent with ESIGN, is technology-neutral, and (if enacted after June 30, 2000), specifically references ESIGN. These two exceptions may not be used to circumvent ESIGN, however. For example, states cannot rely on UETA’s provision allowing states to carve-out additional laws from its scope to go beyond the nine exceptions listed in ESIGN. Also, states cannot rely on UETA’s preservation of delivery method requirements to circumvent ESIGN by imposing non-electronic delivery methods.
Problem Areas on the Way to a Paperless P&C Industry
The good news is that, under ESIGN and UETA, a large percentage of the P&C insurance transaction can be conducted electronically provided that the insured consents. Further, neither UETA or ESIGN specifically carves out P&C insurance and any state insurance law that would require a record involved in the P&C insurance transaction to be in writing, signed, notarized, or acknowledged is superseded by ESIGN/UETA. That covers a great deal of the interaction and relationship between and insured and a P&C insurer.
The bad news is that aside from these areas of relative clarity, several ambiguities persist. These ambiguities make the legal compliance task difficult and cast doubt on whether an entirely paperless P&C transaction is possible.
The Scope of ESIGN Preemption
As noted earlier, ESIGN does not preempt the terms of any state statute enacting UETA in its pure form. However, while ESIGN contains consumer disclosure and consent requirements for the receipt of required notices or information electronically, UETA is silent on the topic. This presents a dilemma for insurers: Does UETA displace those provisions or do they operate in addition to UETA because nothing in UETA is contrary to those requirements? The safest course is to comply with ESIGN’s consumer disclosure requirements in all states, regardless of the form of UETA that any state has adopted.
Further, most states that have adopted UETA have enacted versions that diverge from pure UETA in varying degrees, thereby potentially triggering preemption under ESIGN. This raises the question of whether ESIGN preempts only the deviations from pure UETA, or whether it instead preempts all provisions contrary to ESIGN once the state law falls out of the pure-UETA exemption. A strict construction of ESIGN suggests the latter, which appears contrary to Congress’ intent in creating the pure-UETA exemption. And what about provisions of non-UETA statutes that address areas on which ESIGN is silent? Are they similarly preempted? The foregoing questions could require a state-by-state review of what survives preemption in each state as well as state-specific compliance procedures, which again seems contrary to the notion that Congress passed ESIGN to provide for uniformity.
Congress’ unwillingness to clearly and completely “preempt the field” by precluding any operation of UETA-inspired statutes means that P&C insurers are forced to take a leap of faith that regulators and courts will honor and enforce ESIGN’s preemptive effect as P&C insurers understand that preemptive effect to be. That is a tall order. Insurers are not conditioned to simply ignore the provisions of a state insurance code, particularly where it might be unclear whether a federal law truly preempts the state law at issue.2
UETA and State-Required Delivery Methods
Many states require that certain records or notices related to a P&C insurance transaction be sent via “U.S. mail,” “first class delivery,” “certified mail,” and so forth. Examples are notices pertaining to cancellation, premium increases, non-renewal, among others. Because UETA preserves state law method of delivery requirements, a substantial portion of the P&C insurance transaction would remain subject to paper or hard-copy processing requirements, effectively undermining the goal of conducting a fully paperless transaction.
Thankfully, ESIGN provides that a state cannot use UETA to “circumvent” ESIGN through the “imposition” of non-electronic delivery methods. Problem solved? Maybe not, as the words “circumvent” and “imposition” suggest that they apply only to post-ESIGN attempts to create new non-electronic delivery requirements to deliberately avoid ESIGN’s validation of electronic transactions. Existing delivery requirements, or delivery requirements subsequently enacted in good faith (whatever that might mean in this context), could still be preserved. This interpretation has garnered support from some commentators.
Whether the P&C industry — or a particular P&C insurer — needs a solution for the foregoing ambiguities/problems turns on a couple of considerations.
First, are the legal disconnects and ambiguities truly insurmountable for the industry or insurer at issue? In the end, a closer examination of the individual state laws that come into play for a particular insurer may suggest the ambiguities are not as problematic or that practical work-arounds are available. To this end, a 50-state or more limited survey of the law could provide companies with the requisite degree of certainty that their paperless plan is legally sound.
Second, is going paperless truly worth the efforts and cost that will be involved in creating and maintaining a paperless program that navigates the applicable legal landscape? The most critical consideration in this regard is likely the potential cost savings. That is likely a unique case-by-case analysis for each insurer and this article does not presume to prejudge the results of that analysis for any insurer.
But if one concludes that a fully paperless P&C program is worth the effort, and that it cannot be achieved as a practical matter without further legislative refinements, then there are two general ways to go.
First, the P&C industry could conclude that the current approach to ESIGN preemption is simply too cumbersome and that the only way to achieve uniformity and predictability is to revise ESIGN to preempt clearly and completely the entire field of state law on the subject, including UETA. This is admittedly an aggressive task in terms of scope and probability of success. But it is the only way to achieve true uniformity and predictability. Moreover, such issues are not unique to the P&C insurance industry, so there would likely be many allies that would join with the industry in this effort. There may even be some uncommon allies, as consumer groups have tended to dislike UETA and prefer the ESIGN approach to electronic transactions.
Alternatively, in order to not sacrifice the good for the perfect, the P&C industry could conclude that simply clarifying that state law delivery methods do not apply to electronic records would remove the most serious obstacles to going fully paperless. This would only require a simple amendment to ESIGN that clearly excludes the application of state delivery methods to electronic records regardless of whether and what form of UETA statute a state has adopted.
But to answer the question posed initially by the title of this article: No, we probably are not there yet, but we are closer than we were prior to UETA and ESIGN and there may be operational and/or legislative solutions that will get us all of the way there.
Wisconsin Supreme Court Set to Review Case That Will Significantly Affect the Landscape for Asbestos, Environmental, and Other Multi-Year Claims
By Bartholomew F. Reuter
Insurers and insureds face a challenging set of legal issues when liability claims span across multiple policy periods. Those legal issues often include disputes about the number of policy and occurrence limits that are available to satisfy the insured’s liability; whether the insured’s entire liability can be allocated “jointly and severally” to one or more policy periods determined by the insured; and whether “non-cumulation” provisions in insurance policies are enforceable. The Wisconsin Supreme Court is poised to decide these three issues in Plastics Engineering Company (Plenco) v. Liberty Mutual Insurance Company. How the Wisconsin Supreme Court resolves these legal questions in Plenco will significantly shape the outcome of high-stakes, multi-year claims.
The plaintiff-insured, Plenco, manufactured asbestos-containing molding compounds from 1950 –1983. As a result of Plenco’s use of asbestos, it had been named as a defendant in hundreds of lawsuits for claims arising from individuals’ exposure to Plenco’s asbestos-containing products. Plenco sought coverage for these lawsuits from one of its insurers, Liberty Mutual Insurance Company (Liberty Mutual), under a series of general liability and umbrella policies issued between 1968 and 1989. Thus, Liberty Mutual was on the risk for some, but not all, of the years in which the claimants were exposed to and sustained injuries from asbestos.
Initially, Liberty Mutual paid all of Plenco’s defense costs, settlements, and judgments stemming from the asbestos lawsuits. Then, in 2004, Liberty Mutual advised Plenco that it would pay only “its proportionate share of reasonable and necessary defense costs.” Plenco responded by filing a declaratory judgment action in the U.S. District Court for the Eastern District of Wisconsin. In that suit, Plenco sought a declaration that the policies at issue required Liberty Mutual to defend and indemnify Plenco fully in connection with all of Plenco’s asbestos litigation. In its counterclaim, Liberty Mutual sought a declaration that it was responsible only for a pro rata share of Plenco’s loss.
Legal Issues Presented by Plenco
In order to resolve the competing requests for declaratory judgment, the district court considered three legal issues: (1) whether a “joint and several” or pro rata method should be used to allocate liability across multiple policy periods; (2) how many “occurrences” had taken place; and (3) whether the non-cumulation clauses in the insurance policies were barred by Wis. Stat. § 631.43(1).1 The district court ruled for Plenco on the first and second issues, holding that Liberty Mutual was liable under the joint and several allocation method and that each individual claimant’s injury constitutes a separate occurrence. Although the district court ruled for Liberty Mutual on the third issue by holding that the non-cumulation clauses were enforceable, as is explained below, this ruling was of limited benefit to Liberty Mutual. Plenco and Liberty Mutual both appealed to the Seventh Circuit Court of Appeals, which certified these three legal issues to the Wisconsin Supreme Court. See 514 F.3d 561 (January 22, 2008). The Wisconsin Supreme Court accepted the certification on March 18, 2008.
1. “Joint and Several” or Pro Rata Allocation?
How should an individual insurer’s liability to its insured be determined when different insurers have been on the risk? How should allocation be handled if an insured elected to self-insure for one or more policy periods in a multi-year claim? Should any portion of the loss be allocated to years in which coverage is already exhausted? What happens if one insurer in a multi-year claim is bankrupt? The answers to these questions are determined by the allocation approach selected by the court.
Plenco persuaded the district court to apply a “joint and several” allocation approach. Under this method, any insurer whose policy is triggered is jointly and severally responsible, subject to its coverage limits, for providing a complete defense and indemnity for all damages or injuries, even if only a portion of the damage or injury occurred while the insurer was on the risk. Courts following the “joint and several” allocation approach, including the district court in Plenco, reason that in the typical general liability policy, an insurer agrees to pay “all sums” that its insured becomes legally obligated to pay as a result of an occurrence. Accordingly, the district court held that once a policy is triggered by an occurrence that is at least partially within the policy period, an insurer is obligated to defend and indemnify its insured fully, up to the limits of any triggered policy.2
Liberty Mutual argued for a pro rata allocation approach. Under the pro rata allocation approach, an insurer is responsible for a proportion of the damage or injury that occurred while the insurer was on the risk. Courts adopting the pro rata allocation approach have reasoned that an insurer should not be liable for damage or injuries that occur during a period of time for which it was not paid a premium.
2. Number of Occurrences
General liability policies typically establish a per occurrence limit. If a single, uninterrupted cause “results in a number of injuries or separate instances of property damages,” Wisconsin courts have ruled that there is one occurrence and one available occurrence limit for the claim. If, however, that cause is interrupted or replaced by another cause, Wisconsin courts have ruled that “the chain of causation is broken and more than one accident or occurrence has taken place.” This allows insureds to reach multiple occurrence limits.
Liberty Mutual argued that Plenco’s continuous manufacture and sale of asbestos-containing molding compounds constitutes a single occurrence. Plenco responded that the many claimants to have filed suits against it allege that their exposure to asbestos occurred at different times, at different locations, and under different circumstances. Plenco argued that these factors justify a finding of multiple occurrences, which would permit Plenco to avail itself of multiple per occurrence policy limits. In agreeing with Plenco that there were multiple occurrences, the district court reasoned that it is an individual claimant’s exposure to asbestos that triggers an occurrence.3 From this ruling, the district court concluded that each individual claimant’s exposure was an occurrence under the policies.
3. Non-Cumulation Provisions and Wis. Stat. § 631.43(1)
The policies at issue in Plenco contained “non-cumulation” clauses, which, if enforceable, limit Liberty Mutual’s exposure to its per occurrence limit minus any payments made by Liberty Mutual under a prior policy for the same occurrence. Plenco argued that such clauses are prohibited under Wis. Stat. § 631.43(1). This statute provides that when two or more policies promise to indemnify an insured against the same loss, no “other insurance” provisions of the policy may reduce the aggregate protection of the insured below the lesser of the insured’s actual loss or the total indemnification promised by the policies.
Liberty Mutual argued that Wis. Stat. § 631.43(1) applied only to circumstances where two or more policies provided coverage for the same policy period. Where, as in Plenco, the policies insured successive policy periods, Liberty Mutual argued that Wis. Stat. § 631.43(1) did not apply. The court agreed with Liberty Mutual and ruled that the non-cumulation provisions were enforceable. This victory was of limited benefit to Liberty Mutual, however, because the court’s prior ruling on the number of occurrences meant that a single primary and umbrella policy limit, which totaled $15 million, were available for each occurrence.
Case Status and Conclusion
The parties in Plenco are set to file response briefs in May 2008 and the Wisconsin Supreme Court has already granted several requests from interested parties to file amicus briefs. Wisconsin insurance coverage practitioners are closely watching the Plenco case because the decision will likely have long-lasting implications for asbestos, environmental, and other multi-year claims.
When two or more policies promise to indemnify an insured against the same loss, no “other insurance” provisions of the policy may reduce the aggregate protection of the insured below the lesser of the actual insured loss suffered by the insured or the total indemnification promised by the policies if there were no "other insurance" provisions. The policies may by their terms define the extent to which each is primary and each excess, but if the policies contain inconsistent terms on that point, the insurers shall be jointly and severally liable to the insured on any coverage where the terms are inconsistent, each to the full amount of coverage it provided. Settlement among the insurers shall not alter any rights of the insured.
2 Some courts have held that a joint and several allocation approach will not unfairly saddle the insured’s chosen insurer with more than its fair share of the responsibility for the claim because the chosen insurer can bring a contribution claim against non-contributing insurers.
3 In making this ruling, the district court did not expressly hold that exposure was the only event that triggers coverage. Other Wisconsin courts have adopted the triple (or continuous) coverage triggers of exposure, injury-in-fact, and manifestation.
Proposed Legislation Alters Procedures for Trade Secret Protection in Florida
By N. Wes Strickland
On May 1, 2008, the Florida Legislature passed legislation that will require specific procedures that must be followed to obtain protection of trade secrets that are filed with the Florida Office of Insurance Regulation (OIR). Although these new procedures are included in Section Five of the Homeowners Bill of Rights Act,1 they are expressly made applicable to any person who submits information and documents to the OIR under the Florida Insurance Code,2 and they are not limited to trade secrets submitted in homeowners’ insurance form or rate filings. This legislation does not create new trade secret protections for insurers, but rather specifies the procedures that must be followed to maintain the confidentiality of trade secrets and to avoid release of such trade secrets in response to public records requests received by the OIR under Florida’s broad public records law.3 The legislation was presented to Governor Charlie Crist on May 20, 2008 and, unless it is vetoed, will become effective on July 1, 2008.4
Insurance companies and other persons regulated under the Florida Insurance Code routinely file documents with the OIR that contain confidential and proprietary information such as business plans and financial projections included in license applications. Florida law generally requires the OIR to disclose to the public any documents in its possession unless the documents are protected from disclosure under a specific exemption from the public records law. For many years, the OIR’s rule regarding public records requests has recognized a specific public records exemption for trade secret documents in the OIR’s possession.5
The general trade secret exemption from the public records law is set forth in Section 815.04(3)(a), Florida Statutes. To qualify for the general trade secret exemption, a document must meet the definition of “trade secret” as defined in section 812.081(1)(c), Florida Statutes, which generally includes business-related information that is secret, of value, and kept confidential. It is beyond the scope of this article to describe all of the various types of information and documents that may qualify for the general trade secret exemption from the public records law, but the exemption is fairly broad and could include a wide array of business information that is maintained as confidential by the owner of such information.
Under the new trade secret legislation, to preserve the right to maintain trade secret protection for documents filed with the OIR, the person submitting the information or documents will be required to take the following actions:
- [I consider/My company considers] this information a trade secret that has value and provides an advantage or an opportunity to obtain an advantage over those who do not know or use it.
- [I have/My company has] taken measures to prevent the disclosure of the information to anyone other that [sic] those who have been selected to have access for limited purposes, and [I intend/my company intends] to continue to take such measures.
- The information is not, and has not been, reasonably obtainable without [my/our] consent by other persons by use of legitimate means.
- The information is not publicly available elsewhere.
Pursuant to Florida case law,6 a person filing trade secrets with an agency is already required to mark the information or documents “trade secret” and assert the exemption at the time of filing to preserve their confidentiality. Therefore, the legislation’s requirement to include a “notice of trade secret” and to clearly mark each document or portion of a document “trade secret” basically codifies the case law interpreting the general trade secret exemption.
The primary benefit of the legislation to the insurance industry appears to be in the procedure it puts in place for challenging the release of documents that have been submitted to the OIR and designated as trade secret. In this regard, for at least the past three years, when the OIR has received public records requests for documents that have been marked “trade secret,” the OIR has provided the owners of the trade secrets with written notice of the request and an opportunity to obtain a court order within 10 days after the owner receives the written notice, or else the OIR has threatened to release the documents to the person making the public records request. This has presented a challenging situation for the owners of the trade secrets by forcing them to either negotiate a resolution with the person requesting the records or obtain an emergency injunction within the 10-day period allowed by the OIR. However, the proposed legislation allows a person seeking to maintain trade secret protection 30 days, after receiving notice from the OIR that another party has requested the purported trade secret information, to initiate an action in circuit court challenging its release. Therefore, it should provide a greater level of protection to the owners of trade secrets than the OIR’s existing practices and procedures.
As noted above, if the Homeowner’s Bill of Rights Act becomes law, then the trade secret legislation will take effect on July 1, 2008. In preparation for complying with this new law, insurers and other persons who are regulated under the Florida Insurance Code are encouraged to consult with legal counsel and monitor the communications from the OIR to ensure that all trade secret documents submitted to the OIR will continue to be protected from disclosure under the public records law.
4 The governor has until June 4, 2008 to sign the legislation into law or to veto it, otherwise it will become law without further action by the governor. The effective date of the legislation is July 1, 2008, if it becomes a law.
John N. Gavin authored, “Affiliates’ Dealings With Troubled Insurers — Possible Paybacks in Insolvency,” in the April 2008 edition of Mealey’s Litigation Report: Insurance Insolvency.
“J.S.U.B., Inc. v. U.S. Fire Insurance Company: What Does it Mean to You,” was co-authored by Foley Partner John P. Horan and appeared in the March 2008 edition of Building Central Florida.
On Sunday, June 1, 2008, Foley is sponsoring a reception from 5:00 p.m. – 7:00 p.m. at the San Francisco Marriott during the National Association of Insurance Commissioners (NAIC) Summer Meeting in San Francisco, California. Please join us.
On June 24, 2008, Eileen R. Ridley will present, "The Nightmare Scenario: Wrap Policy Exhaustion," at the Mealey's Wrap Insurance Conference in Las Vegas, Nevada.
Foley was pleased to sponsor the Florida Office of Insurance Regulation Filing and Compliance Symposium May 22 – 23, 2008 in Orlando, Florida.
On May 7, 2008, Heidi A. Sorensen presented, "TIME’S UP: Health Plans Need to Pay Close Attention to the OIG," at the Blue Cross Blue Shield Association's 42nd Annual Lawyers Conference in Glendale, Arizona.
Brett H. Ludwig presented in a session called "Anticipating Reinsurance Disputes: Contract Wordings That Facilitate Resolutions" on Tuesday, April 29, 2008 during the American Conference Institute's Reinsurance Agreements conference at the Flatotel Hotel in New York City.
Richard Bromley moderated a panel presentation on “Advanced Audit and Litigation Issues and Consideration in the State Tax Arena” at the April 29, 2008 Insurance Tax Conference in Chicago, Illinois. Mary Kay Martire served as a panelist.
Kevin G. Fitzgerald and Thomas E. Hartman spoke on the topic of evaluating Sarbanes-Oxley compliance and practical benefits across small, medium, and large insurance firms at the Marcus Evans Conference, Effective SOX Strategies in the Insurance Industry in New York, New York, April 28 – 29, 2008.
Foley was proud to sponsor breakfast on Friday, April 11, 2008 at the Mealey’s 15th Annual Insurance Insolvency & Reinsurance Roundtable in Scottsdale, Arizona.
Brett H. Ludwig and Max B. Chester presented at the New Appleman's Insurance Coverage Teleconference, "Reinsurance Arbitration & Terrorism Insurance," on April 9, 2008.
Brian S. Kaas, Brett H. Ludwig, and Eric L. Maassen presented at the Brokers & Reinsurance Markets Association (BRMA) 2008 Committee Rendezvous, held March 30 – April 1, 2008 in Naples, Florida.