State Farm, Allstate and the McKinsey Report

August 29, 2009

CNN anchor Anderson Cooper recently did a two-part series on the business practices of State Farm Mutual Insurance and Allstate Insurance. It was the culmination of an 18-month CNN investigation of low-impact, soft-tissue injury accidents around the country. The series was then broadcast on CNN. The links to the two segments are listed below.

Three major insurance companies joined together and hired the legendary business consulting firm McKinsey and Company. McKinsey, in their customary fashion, looked at the insurance companies’ business practices and made recommendations on how to increase profits in a report entitled “The Three Ds: Delay, Deny and Defend.”

In delaying a claim, insurance companies place significant financial pressure on a policyholder or claimant. That pressure can force a policyholder or claimant to accept a much smaller claim settlement amount.

By denying a claim, insurance companies force policyholders and claimants to seek legal representation. Many personal injury attorneys are reluctant to take on a client for a small loss, since attorneys often work on contingency fee schedules. So, in the absence of good legal representation, policyholders and claimants are once again forced to accept “lowball” settlement amounts from insurers.

In defending a claim, the insurance companies take the position of forcing the policyholder first into the Appraisal process found in most policies. This requires that each party choose a representative, and then the representatives choose and umpire. The agreement of any two of the three chosen constitutes the claim amount. But this will add months to any claim process. The next step for the policyholder or claimant is to file a lawsuit. This will add years to the eventual settlement…if they can find legal representation and pay for it.

Insurance companies have taken this position with the intent of making the legal process so costly for personal injury attorneys that they become even more reluctant to accept new clients for small cases.

So far, the “Delay, Deny and Defend” tactics have been wildly successful for any insurance company that has adopted the tactics. Industry profits have risen considerably over the past few years, despite significant catastrophic events such as Hurricane Katrina.

Here are the links to the CNN reports.

Part One

Part Two

There is also a tremendous book available about this topic, entitled “From Good Hands To Boxing Gloves: The Dark Side of Insurance,” by David Bernardinelli. Here is a link:

From Good Hands to Boxing Gloves: The Dark Side of Insurance

There are some things you can do as a policyholder or claimant to prove your claims. Visit the website at: for more information.


Verdict on Aftermarket Parts Costs Insurance Company $17 Million

August 29, 2009

American Family Mutual Insurance Company was ordered to pay $17 million to settle part of a class action lawsuit over aftermarket parts in Missouri.

A jury in Jackson County, Missouri returned a decision that American Family had wrongly paid automobile damage claims based upon the use of aftermarket replacement parts.

Aftermarket auto parts are not held to the same testing and safety requirements as Original Equipment Manufacturer (OEM) parts.

Consequently, they may fit on a car as a replacement part, but the use of an aftermarket part does not constitute repairing the car to the pre-loss condition. Insurers love aftermarket parts because they are considerably cheaper than OEM parts.

The jury verdict affects 315,000 Missouri policyholders who filed claims between May 1990 and December 2004.

Ted Pintar is one of the Plaintiff attorneys. “It (the verdict) sends a clear statement to insurance companies who continue to force inferior aftermarket parts on insureds as part of their claims practices.”

A spokesman for American Family Mutual Insurance Company said that the company would appeal the verdict.

Friends, don’t think for a minute that the insurance companies will just roll over and accept this verdict as a standard for the nation. Every state has its own Department of Insurance, and they will continue to conduct business as usual on a daily basis. So, if you have a car wreck, you must still insist IN WRITING that your vehicle be repaired with OEM parts.

First and foremost, your car will not be as safe as it was before the accident if aftermarket parts are used.

Second, there is the matter of Diminished Value. Every car loses value once it has been in a collision and has to be repaired. A vehicle repaired with OEM parts will lose less value than one repaired with aftermarket parts.

You must fight for your own safety and the value of your car. The insurance company does not care about either.

Fight and WIN!

Health Care In Atlanta: The World’s Most Expensive Moth

August 23, 2009

Saturday evening, I was sitting in my big comfy leather chair watching the Atlanta Falcons lose their first pre-season game. At about 10:30 a small moth flew into my right ear. I reached up to brush it away. Instead of leaving the vicinity, the bug walked into my ear canal and kept right on walking. He stopped when he got to my eardrum. Then he started flapping his wings.

Trust me when I tell you that it’s a very strange sensation.

We (my wife and I) tried tweezers. We tried flushing it out with water. But when nothing at home worked for extricating the little pest, we headed for the local hospital emergency room.

We arrived at 11:30. Check-in was a breeze. Within 15 minutes we had been checked in and triaged. We told them we were self-pay, since we have a high deductible. Then the waiting began.

At 4:00 am Sunday morning, we were ushered into an emergency room exam room. The doctor removed the bug quickly and by 4:15 we were walking toward the business office for discharge.

The nice lady in the business office calculated our bill. It was $402.00. She told us that if we paid right then, they offered us a 50% discount on the bill. We stroked them a check on the spot.

Half off for cash! What does that tell you?

It tells me that the hospitals are billing the insurance companies for 200% of their costs. It also tells me that the hospitals know they’ll get stiffed by the insurers. I also suspect that my hospital bill was paying for some of the more ethnic folks that were also in the E-room while I was there.

I’m not beating the drum for single-payer health care. I’m just offering an example of how broken the medical services delivery system is in America. I’m not saying that the hospital staff performed badly…they did a fine job. But the insurance companies have created this horrible medical insurance game and everyone in America is forced to play the game.

Unfortunately I don’t foresee a truly well-planned and intelligently-discussed health care solution coming from this President or this Congress. Congress should have the health care issue in committee and solutions should be discussed for a year or two before action is taken. But Congress won’t spend three weeks on this before they pass a bill. Also, there are too many special interests and lobbyists in the mix who will do anything to protect their ox from being gored by Congress. All we Americans are going to get is more and more incompetence from our public servants.

Event Cancellation Insurance: Protecting Your Big Event

August 8, 2009

The event was the COMDEX convention held at the Georgia World Congress Center in Atlanta. COMDEX was the annual global IT convention, featuring the newest computers, electronics and gadgets. This was the biggest convention held in Atlanta each year. 200,000 people would attend the convention over four days.

Two days before the convention opened, a category 3 tornado struck downtown Atlanta. The twister tore off 100,000 square feet of roof from the Convention Center and dumped hundreds of thousands of gallons of rainwater inside. Local news footage showed water cascading down a big stairway like a waterfall.

COMDEX was cancelled. The financial losses for the event planners fairly boggle the mind.*

What if the show can’t go on? The consequences — particularly for a corporation staking big bucks on a marketing event or for an association that gains most of its revenue from an annual conference — can be dire. One safety net is event cancellation insurance, which can protect your event investment against catastrophes, strikes, earthquakes and snowstorms.

Event Cancellation Insurance has been around for decades, and has a long history of protecting special events from conventions, to trade shows, to exhibitions, entertainment or sporting events.

An insured may have incurred expenses all year long preparing for an event but can’t afford for an unpredictable event to cause its cancellation. Think of the costs for travel, venue deposits, rescheduling costs, as well as other costs including planning.

Often the kinds of problems that can lead to postponement, cancellation or relocation of an event are out of the planner’s control. Look to Event Cancellation Insurance for the kind of coverage needed to protect that financial exposure.

Whether planners should invest in cancellation insurance depends upon how important an event is to an association or corporation financially and what kind of risk it is assuming. If your group event is planned for 50 people, you’d probably not buy this policy. But if 500 or 5,000 people were expected to attend, event cancellation insurance could be crucial to your bottom line.

Sometimes, event planners don’t think about event cancellation insurance. They either are unaware that such coverage exists, or mistakenly rely on the insurance of the event venue…like a convention hall. The venue’s insurance will help them rebuild or repair. But it won’t help the event planners find another venue, or compensate them for the costs they incur or income they lose from cancellation.

Coverage and Cost

The rule of thumb is that cancellation insurance covers perils that are beyond the control of a planner, such as inclement weather, strikes, outbreaks of disease and so on. You can also purchase coverage for “Non-Appearance,” in case your event relies on the appearance of a person or group (speaker, performers, player, invited guest). The policy also covers things such as extra expenses for trucks and workers in case an exhibitor doesn’t break down his exhibits. What is not covered are lack of planning, low attendance from a lack of interest or poor marketing, or bankruptcy of the planner.

Coverage begins as soon as the premium is paid and usually extends for five days after the event. Coverage purchased well before an event can be a godsend if something happens to the facility where you’re booked, as the coverage would cover costs of relocation and notifying attendees.

The cost of this coverage is calculated on a policy-by-policy basis. Every event is different and each has unique risk exposures. The standard costs of this coverage run about fifty cents per $100 of coverage. However, variables like location (areas susceptible to hurricane or earthquake) or season (winter is higher than spring, summer or fall) can push the price up towards $1 per $100 of coverage. So, a $1 million policy might cost up to $10,000 or more.

When To Buy

Event cancellation insurance is usually less expensive if purchased far in advance. Insurers increase the premium rate, theorizing that the closer the event is, the more desperate the planner must be for coverage.

We recommend that you get at least two price quotes before making a buying decision. We also recommend that you review a sample copy of any policy before purchase to determine what is covered and what is excluded.

Then, have a super successful event!

*This catastrophe was entirely fictitious.

Contractors Alert: Your Liability Carrier May Start Playing Rough

August 6, 2009

If you are a General Contractor (GC), you most assuredly carry Comprehensive General Liability insurance for your business. If you’ve spent any time reading your policy (fat chance), you may remember that the terms and conditions of the policy require you to protect yourself and your insurer.

Specifically, when you hire sub-contractors, you are supposed to require that the “sub” execute a Hold Harmless agreement as part of the contract, in which the sub agrees to protect the general contractor from liability for acts of which the sub is found legally liable. Further, the sub is supposed to name the general contactor as an Additional Named Insured, which provides a legal defense to the GC. At that point, the GC’s policy becomes excess over the sub’s coverage.

I used to be a General Contractor, and I know GCs pretty well. They, being a somewhat independent bunch, frequently do business with subs on little more than a handshake or a phone call. These subs are people they’ve used repeatedly, and a high level of trust is in place. The idea of getting all that contract paperwork executed before the first hammer is lifted or spade turned is just a pain in the backside. So, it regularly gets ignored.

Unfortunately for GCs, the insurance companies have been taking it in the wallet as they have absorbed liability for the GCs when they fail to get that Hold Harmless in place. So, the risk management efforts that the GCs are supposed to do aren’t getting done. And that has the affect of transferring the risk to the insurance companies.

They get to pay when the GC’s contract fails to contain a Hold Harmless Clause.

They get to pay when the GC doesn’t require his subs to maintain their own insurance.

They get to pay when the GC doesn’t get himself listed as an Additional Named Insured on the sub’s policy.

So, the insurance companies have begun to issue policy endorsements that deny coverage when there is a loss due to the sub’s operations and the GC did not get the Hold Harmless Clause into his contract and proof that the sub named the GC as an Additional Insured. The insurers are figuring that the only way to get the attention of the General Contractors is to put some of the GCs’ assets on the table.

On August 4, 2009, the California Court of Appeals issued the ruling in North American Capacity Ins. Co. v. Claremont Liability Insurance Company. The ruling upheld this Contractors Warranty Endorsement, and stated that the insurance company could take an excess position even if the subcontractor had no insurance, simply because it was their duty to have insurance. Therefore, the endorsement and coverage could proceed AS THOUGH the subcontractor had the coverage in place.

To quote the ruling:

“We find the “clear and explicit” meaning of the contractors warranty endorsements, as used in their “ordinary and popular sense” by a layperson establishes a precondition of coverage as to work done by subcontractors for whom (the GC) failed to secure both a written hold harmless agreement and a certificate of insurance. The trial court therefore did not err in finding the contractors warranty endorsement enforceable under the facts of this case.”

Now that the insurance companies have a favorable court decision in their back pockets, you should expect your insurance carrier to play for keeps. A potential liability claim denial will bring a new discipline to the business life of the General Contractor.

Sustaining The Unsustainable: Mantra For Government Madness

August 5, 2009

I first saw this term used by writer James H. Kuntzler. It could be the rallying cry of all of the USA.

Think about our federal government and our economy, which has been regulated nearly to death by our federal government over the last 100 years:

• The United States Federal Government is bankrupt.
• Some states, cities and other municipalities are either bankrupt, or teetering on the brink.
• Our currency, the Dollar, is the world’s reserve currency. It supplanted the British Pound Sterling as world reserve currency in the early 20th Century. Now, many nations around the world wish to stop using the dollar as reserve. Confidence in the dollar is ebbing rapidly.
• The national debt is rising faster and faster as Washington borrows from around the world. Washington cannot service the debt it has, much less more debt. So it prints more worthless currency.
• The housing bubble is far from over.
• The foreclosure and debt default crises are far from over.
• Unemployment continues to rise, and the national rate is far higher than reported.
• The US went from a manufacturing economy to a service economy in two generations. But widespread wealth is created in manufacturing.
• Bad debt is omitted from financial statements to create illusions of financial solvency.
• We perfected Second Generation Warfare, which is the military of various nations fighting each other in vast array.
• Because of Washington’s foreign policies since WWII, we have created lots of enemies that will cheer at our demise.
• Heavy reliance on foreign oil supply makes us vulnerable to political turmoil.
• Heavy reliance on foreign food supply makes us vulnerable to political turmoil or world climactic changes.

The only constant in human existence is change. People have always had to adapt or die. There is nothing different going on in the present day.

Washington has created nearly every societal problem we face today. They wish to solve the problems by creating new programs and laws that will create new problems. And on it goes. Washington has created unsustainable economic climates and markets. The “blowback,” or unintended consequences of their regulation, is the change they cannot control. They appear to believe that more interference will fix the blowback of their former interference.

Amidst that effort, they wish to sustain the unsustainable. Said another way, they want to re-inflate the bubbles.

I cannot think of one government program that is sustainable in its present form. Even a program such as the US Post Office cannot sustain itself in its present form, as the numbers of mail pieces continues to shrink year to year.

I cannot think of one proposed government program that is sustainable in any form. Not health care…not bailouts…not stimulus programs.

Let’s look at the list of examples in the light of “unsustainability:”

– The Federal Government is bankrupt. How much talk have you heard about shutting down Federal programs? How much have you heard about drastically shrinking all Federal Spending? The present size of Federal Government is unsustainable, yet they want it to grow.

– Bankrupt state governments like California should have closed their doors when they could not balance their state budget in accordance with state law. But they continue trying to sustain the unsustainable.

– The dollar is going the way of the currency of Zimbabwe. Massive inflation is inevitable. The Federal Reserve must continue to print worthless currency to sustain the unsustainable. Washington has a tiger by the tail, and if they let go, the tiger will devour them.

– Washington must continue to borrow from other nations, or the house of cards blows away. To stop borrowing, or to have another nation refuse to lend, would force Washington into insolvency. Its present debt instruments would become worthless instantly.

– The housing bubble was built upon easy credit. If the nation’s lenders went back to the old days in which you had to put 10% or 20% down to buy a home, some current empty housing inventory would likely never be purchased. The housing disaster, brought to you by your Federal Government, will likely never recover to its bubble days. Bubbles are unsustainable.

– The financial industry around the world tasted of the American mortgage market. When it went bad, the whole world’s financial markets caught a cold. There are trillions of dollars in bad debt that must be dealt with, but that have not been disclosed yet. The current financial industry is unsustainable long into the future.

– American jobs are continuing to leave America for foreign shores. Consumers do not need to consume at the bubble pace, which relied on easy credit. The hot economy was unsustainable when you remove easy credit.

– Politicians promise millions of new jobs, and then offer government stimulus money to make it happen. But the stimulus is temporary and the jobs are not sustainable. Manufacturing jobs are leaving America forever. Because of layers of Federal regulations, American-made goods are not competitive.

– Generally Accepted Accounting Principles (GAAP) is a forsaken and rejected concept. When a financial statement can be prepared to take bad debt off the books, it no longer accurately reflects the true financial health of the entity. Over time, it will affect investors as they can no longer invest with true expectation of any future profit.

– Nations no longer line up their armies on the battlefield and shoot at each other. They have jumped to Fourth Generation Warfare, which is the guerilla warfare method. Second Generation warfare is helpless against Fourth. Yet, the American military industrial complex hurtles forward building unnecessary jet fighters and offensive weaponry. Wars of invasion are unsustainable.

– Bullying other nations with disrespectful foreign policy is unsustainable. Yet little changes from one administration to the next…except more bullying.

– Energy dependence is unsustainable. Energy independence is sustainable, and that has to include nuclear power to generate electricity.

– Food dependence is unsustainable. Food production in America has been supplanted by price supports for all manner of commodities, including corn for ethanol. But ethanol is not profitable or sustainable without government subsidy. And subsidies are not sustainable.

Washington is on a mad quest to sustain the unsustainable. This is the very reason that they can never succeed. This is the reason that they cannot change to being honest in their dealings. This is the reason they must continue on this path until the inevitable collapse occurs.

God help us when that collapse finally occurs. Not only will the United States collapse, but it will take the world economic system down with it.

Cash For Clunkers: Uncle Daddy Helps Americans Buy Cars

August 4, 2009

The Obama Administration and your Congress funded the “Cash For Clunkers” stimulus program to spur new car sales. They funded it with $1 Billion dollars. Some group of bureaucrats wrote the rules for the program such that when a person trades in a used vehicle that gets poor mileage, they will receive $4,500 credit for that car.

But, after the first four days of the program’s life, Washington announced that the program was so “successful” that it would run out of money…money that was supposed to last 90 days.

This program’s rules and fine print are enough for ten negative articles. Rules like disposal of the clunker and filing the required forms are Orwellian. But today let’s take the view from 30,000 feet instead of using just the ground-level look.

The four most salient points are:

1. This law is unconstitutional. Nowhere in the Constitution does it authorize Congress to spend money helping citizens to make purchases of anything. The law is clearly treason against the Constitution, and those that voted for it and He who signed the bill into law should be prosecuted for that treason.

2. The stimulus is artificial. It does not come from the needs of consumers, but creates a desire for a new car. I would argue that few of the buyers of new cars under the program actually “needed” a new car. They already had a car. Sure, it might have gotten somewhat poor mileage. But buyers of SUVs don’t usually consider mileage in their buying decision. Passenger safety is their number one consideration when buying an SUV. The statistics coming out of the “Cash For Clunkers” program tell us that the most traded vehicle is the SUV, and the most purchased car is the Ford Focus. So, the government is skewing the marketplace to its own desires.

3. My understanding is that the “Clunkers” must be destroyed, not resold. So, a perfectly good automobile is sent to the crusher. Can’t be resold, can’t be used for parts. Stiff fines are assessed for dealers who sell the vehicles instead of crushing them. The circle of stupidity is complete. The economic loss for the clunker is 100%. The most uneducated child in America would instinctively understand that destroying the clunker is bad for business.

4. Washington is encouraging debt…again. In the real estate bubble, federal law encouraged…even forced…lenders to lend to those of questionable ability to repay the loans. Washington is doing it again in the Automobile industry. They have created a new bubble, albeit a short term one. The very problem of taking on more debt instead of paying off debt and increasing savings is completely ignored by Washington. Did I say “ignored?” No, Washington has purposefully rejected fiscal responsibility, since it would be hypocritical for them the promote a philosophy they summarily reject.

“Cash For Clunkers” is yet another government program that harms American citizens. All the more reason to secede from the United States of America.