Monthly Archives: February 2012

It’s About Time – Leap Year

February 29, Leap Day, is a special day and, in its honor, we are looking at some interesting aspects of time.  Previous posts have reviewed the events of Leap Day 1912 and looked at the change of the concept of time from completely analog to a standardized concept divided the world around into common time zone. Today, we look at Leap Year – why we need it, how it came about and some interesting facts about it. 

Why we have it is pretty easy.  We call a year 365 days.  In fact it takes the Earth 365.242 days to go once around the sun, to have the calendar year balance out with the “solar” year, we would have to add about six hours to December 31.  That might suit the News Years party goers, but would certainly make getting up on New Year’s Day a little iffy.   

It wasn’t hard to notice that dates were getting out of whack if you were paying attention and the Romans had it all figured out.  Julius Caesar had a hand in the origin of leap year in 45 BC.  Before Julius, the Romans had a 355 day calendar and needed to slip in a whole extra month every couple of years to keep things straight.  If this sounds strange, it wasn’t, both the Jewish calendar and the Chinese calendar have a similar approach.  This likely stems from the use of lunar months to calculate the year.  A year of 12 lunar months is about 354 days with the average time between full moons at 29 days, 12 hours, 44 minutes. If we operated on lunar months, every few years your Washington home insurance would have a thirteen month billing cycle. 

The Romans – like folk on the peninsula – had a lot of festivals to keep track of.  A couple of years of lunar month calendars and we would be doing the Rhody Run the same week as the Lavendar Festival.  Julius Caesar simplified things by adding some days to different months of the year and created the 365 day calendar.  Caesar established leap years as well, though likely not to delay his death on the Ides of March by a day.

So, with the year just a bit longer than 365 days, we need to catch up. We add a leap year every four years – except over a few centuries that adds too much time so on some century years we don’t have a leap year.  In fact, century years are only leap years if they can be divided evenly by 400.  Got that?  There will be a test. 

The oddity of a day that occurs once every four years is associated with other oddities.   Leap Day has been known as “Bachelors’ Day,” maybe after an Irish legend  that St Bridget did a deal with St Patrick to allow women to propose to men every 4 years.  There is also an Honor Society of Leap Year Day Babies, a club for people born on February 29th.

Maybe the most interesting historical question though is what happened on February 30th?  You never heard of February 30?  In 1700, Sweden decided to change from the Julian calendar to the Gregorian calendar as other European countries had.  To true up the calendars, the Swedes needed to lose eleven days.  Other countries had simply dropped the necessary days in one year.  Sweden decided to adjust over forty years by eliminating leap days.  It turned out to be an unfortunate plan that would have had Sweden out of sync for 40 years.  Sweden decided to realign in 1712 and to get everything right had to have two leap days – February 29, 1712 was a normal Leap Day and February 30, 1712 replaced the day that had been omitted in 1700.

It’s About Time – Standardized Time and Time Zones

In honor of all the February 29’s, we are taking a look at some interesting aspects of time.  In a previous post, we looked at events reported in the Port Townsend Leader a century ago, discovering that, while the specifics of news change, many of the topics and their treatments in the press are as fresh as today. 

Today, we look at time from an hourly perspective and that is evidently a habit we get from the Egyptians.  We know this because archaeologists have found early sundials marked with hours.  If you think about it, marking time by the sun gives rise to some interesting issues – for example, in the winter, when days are shorter, so are hours and everybody gets to leave work early.  This was probably less of a problem in Egypt – closer to the equator – but would be a real issue in Fairbanks.

The Greeks figured out how to divide the day up into even segments, but without the mechanical clock, the world largely told time by the sun and the length of hours varied until the 14th century.  The clock got us part way to today.  It divided time into even segments and got us through the night – a difficult job for a sundial.    

Fortunately for us – unfortunately for time – the world turns.  We know that 9 AM in New York is 6 AM on the peninsula but in the middle ages – and well into the 19th century all time was local.  Towns would set the town clock by the sun, so two cities 100 miles apart, east to west, would have slightly different times. The British Railroad system fixed this problem for us.  The railroad had an understandable problem in scheduling when time varied, so they elected to standardize all of England first on London time and then in 1847 on Greenwich time.

The US did not standardize time until 1883, again at the urging of the railroads.  Not everyone thought that was a good idea.  Detroit, for example, kept local time until 1900, which may account for their fondness for transportation devices that do not run on schedules.  The size of the US and Canada presented special problems.  Where England could get by on one time zone, 9 AM in Boston and Seattle did not make astronomical sense and a Canadian Railway engineer, Sanford Fleming, helped promote a series of meridian based “time zones.”  Fleming was also instrumental in setting up the 1884 International Prime Meridian Conference in Washington, at which the system of international standard time was adopted and Greenwich Meridian Time was established as the baseline for counting time zones.  Here on the peninsula, we are Greenwich Meridian Time (GMT) minus 8 hours.  The International Date Line is at the 180th meridian and Wellington, New Zealand, where it is already tomorrow is GMT plus 12. 

 It is sobering to realize that a uniform system of time is really a little over a century old yet it is integral to the way we live.   Accident reporting on your Washington auto insurance policy or home insurance events may depend on a standardized time system that allows us to communicate reliably about the time in Seattle or Spokane. Trains, planes, televisions and a great deal of commerce depends on our ability to agree on what 9 AM is anywhere in the world.    

It’s About Time – 2/29/1912

For most of us, and most of the time, we worry about time only when we look at our watches, when we are late for an appointment or when an important date is right around the corner (metaphorically) and we haven’t bought a gift. On the occasion of February, a unique month, in a leap year, it is a good time to look at some aspects of time.  Clearly February is the Rodney Dangerfield of months; it just doesn’t get much respect. Not only is it shorter than other months, but when we need to adjust our calendar, we pick on February again.  We make it a little longer or shorter to keep our clocks in line with the planets and our own spinning world.   So, in honor of February 29, 2012 we will look at some aspects of time, leap years and the events of February 29’s over the next several days. Today, we look back a century at the Port Townsend Leader edition of February 29, 1912 to see what was going on around here 25 leap years ago.  The Leader’s historical issues are available through the Port Townsend Public Libraries research area.

One front page article from the leap day Leader related how the interest in the presidential election was beginning to grow with Teddy Roosevelt’s announcement of his candidacy – something the political commentary weary might note with interest.  One Lucian McCardle of Quilcene was appointed “Roosevelt Manager” for Jefferson County by the Mayor of Seattle and there was an extended discussion of the merits of county conventions versus a direct primary as the method for selecting delegates. 

An inside story – or maybe unsigned editorial – in the category “the more things change the more they remain the same,” will interest local pedestrians.  It appears that complaints were growing about violations of the City ordinance against riding bicycles on the sidewalk. One of the many forays of “local wheelmen” onto the sidewalks resulted in an injury to the daughter of a “prominent citizen” and resulted in a call for the sort of strict enforcement that had characterized the period just after passage of the ordinance.  We hope her insurance was up to date, and their liability coverage was adequate.

The Rose Theater was advertising the Final week of a production of “Pumpkin Husker” presented by the Ralf Belmont Company.  For those not versed in century’s old slang, a pumpkin husker may be synonymous with Rube or a less than complimentary reference to rural folk.  A little research suggests the play traveled widely in 1912, playing to satisfied audiences in New York, Boston, Chicago and Philadelphia before reaching Florence Alabama in November, 1912.  


The automobile industry was beginning to burgeon as well as evidenced by the large ad for Michelin “Anti Skids.”  One sincerely hopes the Washington auto insurance industry was also active, because a leather tire with metal studs does not sound like a safety feature today.  



History of Insurance Regulation Part 2

In a previous article we traced some important landmarks in the development of insurance in America from the 18th to the mid-twentieth century. Cases like Paul vs. Virginia and the South-Eastern Underwriters Association helped to shape our regulatory climate through the end of the twentieth century.   

One of the biggest regulatory changes affecting insurance companies began in late 1999 when Congress introduced the Gramm-Leach-Bliley Financial Services Modernization Act.  The Act removed distinctions between insurance companies, banks, and investment services that had been in place since the Great Depression and reaffirmed by the Bank Holding Company Act and its amendments that forbid banks from conducting general insurance underwriting or agency activities. Gramm-Leach-Bliley repealed sections of these earlier acts and allowed banks to engage in a wide range of financial services.

The law was responsive to marketplace and technological developments that had begun to blur the roles of different financial service providers and its goal was to allow the financial services market to offer services more efficiently and at less cost. Recognizing that the new financial institutions resulting from these changes would have access to an incredible amount of personal information, the law provided for restrictions on data use. Gramm-Leach-Bliley included requirements to protect the personal data of individuals: First, banks, brokerage companies, and insurance companies were required to store personal financial information securely. Additionally, they were required to advise consumer of their policies on sharing of personal financial information. Finally, they were required to give consumers the option to opt-out of some sharing of personal financial information. Citigroup was only one of the financial conglomerates that resulted from the Act. 

The insurance industry continues to be affected by newer laws and by it’s evolving role in the marketplace. The marketplace changes how insurers operate since banks, brokers and non-insurance financial entities are playing a larger role in providing protection against certain types of loss.

In the past few years, legislation like Sarbanes-Oxley intended to protect shareholders and the general public from accounting errors and fraudulent practices and the Patriot Act with roots in concern with terrorism have had an impact on the insurance industry.  Insurers are still regulated largely by the states, but similar to the financial services industry, they have an increasing  obligation to comply with federal regulations involving gathering and use of financial data, reporting financial transactions, adhering to customer rights to privacy. Our Washington insurance agencies remain responsive to the Washington Insurance Commissioner’s Office, and we are also responsive to federal requirements that help insure our customers safety and privacy. 

History of Insurance Regulation Part 1

We have mentioned in an earlier article insurance began in America in the early 18th century when Charleston South Carolina residents created the first American mutual insurance company. The growth of the industry and its spread through the states led to situations in need of regulation, particularly as insurers reached out to cross state lines in search of clients.  There are a number of key cases and laws that have defined the current regulatory status of the insurance industry.

Paul vs. Virginia was an early case that tested whether states had a right to regulate insurance or whether insurance was “interstate commerce” and subject to regulation by the federal government.    The Virginia legislature passed a law that provided that an insurance company must be incorporated and licensed in the State in order to do business there.  In the 1860s, a New York insurance agent began to sell insurance in Virginia. The State of Virginia filed a legal action against the agent for failing to comply with Virginia law. The case was argued all the way to the U.S. Supreme Court, which decided that insurance was not interstate commerce and should, therefore, remain under each state’s jurisdiction.

In the early 1940’s, The Department of Justice sued the South-Eastern Underwriters Association (SEUA) a group of insurers,  for violating the Sherman Anti-trust Act. The Association members had agreed to use uniform insurance rates.  The Department of Justice contended that this amounted to price fixing and was a violation of federal law. The association argued that since insurance was not commerce, it was not subject to federal law. This case also made its way to the U.S. Supreme Court.  The Court was persuaded by the antitrust aspects of the case and ruled that insurance was interstate commerce and subject to federal regulation. This overturned the decision of Paul Vs. Virginia and handed regulatory authority back to the Federal Government. 

The reversal came only a year later with passage of the McCarran-Ferguson Act which reaffirmed the ability of individual states to regulate insurance. The Act added provisions that required each state to enact the same type of anti-trust laws used by the federal government. Eventually, each state did pass its own anti-trust laws, allowing the states to keep insurance regulation at the state level.

Since the 1940’s the states have regulated insurance within their own borders.  Here the Washington Insurance Commissioner’s office has the responsibility for assuring that there is oversight for all insurance products sold in the state.  The Commissioner’s office protects consumers and helps make sure that companies, agents and brokers follow the rules. 

More recently, there have been additional changes in the regulatory environment that affect the insurance industry. We will address some of these 21st century changes in another installment. 

Renting your home

One product of the downturn in the housing market has been an increase in the number of people who have turned toward renting their home as a means of maintaining an income stream, to preserve equity or hold property toward future appreciation.  However, becoming a landlord involves more than just collecting rent.  If you are considering becoming a landlord, you have maintenance issues, landlord-tenant issues and laws that you must understand and respect.  You also have insurance issues that require consideration. 

Any property owner should have insurance to protect the property, any buildings or homes on the land and the contents of the home. If you have a mortgage, your mortgage holder is likely to require you to get some form of property insurance to protect against losses.

If you elect to become a landlord, there are special risks you need to consider that go beyond other property owners.  You may face legal risks arising out of landlord-tenant disputes, risk of income loss if the property becomes unusable and other seldom considered risks.  It is important to survey your potential risks and understand the types of insurance coverage that can protect you and your investment from all kinds of potential risks and losses.

The amount and scope of coverage is going to vary with your tolerance for risk, the rental situation and the value and nature of the property. Landlord insurance can be barebones or quite comprehensive.

There are five types of coverage you might want to consider when deciding to become a landlord. 

Building Insurance – this coverage is for the structure or structures being rented.  Make sure to consider all the structures on the property – like sheds – and purchase enough coverage to assure replacement in the event of serious damage. 

Liability Insurance – If your tenant, is injured on your rental property and claims it was your fault because you didn’t fix a faulty hand rail on the steps, landlord liability insurance can help defend you. 

Contents Insurance – Your tenant should get renters insurance to cover their property, but if you are renting a furnished property, your property needs to be protected.

Legal Expenses – Not all rental situations go smoothly.  You can insure against the risk of legal costs of rental disputes, evictions, contract issues and similar problems with a tenant.

Loss of Rental Income– If there is a loss that damages your rental property, rental income coverage can help preserve your income stream while the property is replaced or repaired…

Your Washington business insurance agent can help you understand these coverages and suggest the insurance you need to feel comfortable in renting out your home. 

Learning About Deductibles with Washington Home Insurance

When you are buying your first home in Washington State, one of the details you will need to consider is how to get the appropriate Washington home insurance for your needs. Affordability may be a key issue and thinking of ways to reduce your home insurance premiums should be a priority. Here are a few thoughts which may help you reduce the level of your policy premiums, which can result in savings over the long term.

Make changes to your home

By strengthening the security of your house – adding better locks to windows and doors, installing a recommended burglar alarm, and joining or setting up a neighborhood watch program – you demonstrate to your insurance company that you are serious about improving your home’s security against would-be thieves. The insurer may then class you as less of a risk against burglary, and possibly reduce your premiums.

The same goes for reducing the risk of the damage caused by natural disasters. For example strengthening your roof against windstorms may reduce the likelihood of roof and building damage and again put you in a lesser risk category.

Increase your deductible

The deductible is the amount you pay before any compensation is given by the insurance company. The system is designed to stop frivolous claims made against policies. By increasing your deductible, you may reduce the level of premium you pay.

By making a few strategic changes, you may find that you can reduce the level of premium on your Washington home insurance. Need more information? Call us to discuss the details.

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Subrogation

It may sound like a medical procedure, but “subrogation” is a common and very important insurance policy provision.  An online legal dictionary defines it as:  “The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he or she who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or Securities.”  That seems a pretty dry description of a process that helps both you and your insurer manage claim costs.  The concept is used in all sorts of insurance situations from personal auto insurance to business. 

The reason it works to the benefit of both the insured and the insurer can be illustrated through an example.  Let’s say your neighbor wants to celebrate the fourth of July with a homemade fireworks display.  One of his bottle rockets goes astray and lands on the roof of your shed, reducing the shed to ashes.  You know that you can sue your neighbor because his negligence caused your loss, but you also have your own insurance policy.  Typically, your insurance company would step in to pay you for the damages to your shed, and then exercise the subrogation provision of your policy to recover from your neighbor (or his insurer).  In short, your claim is paid expeditiously and your insurer recovers the cost of the claim from your neighbor. 

Whether it is a homeowner’s policy or auto insurance, an insurance policy is a contract between the insurance company and the person or organization that wants protection. Eligible losses are limited to those that are the policyholder’s legal responsibility, but as in the illustration, there are times when a loss is settled under a liability policy; but someone else is responsible. The effort to recover payment made by your insurance company for your neighbor’s negligent use of fireworks illustrates “subrogation”. It is the legal right that allows the insurance company to take over a right held by their policyholder and once the insurer claims this right, it can pursue recovery from another person or corporation who is actually responsible for the loss.

In Washington auto insurance, if your insurance company pays a doctor for your treatment after an accident where someone else was at fault, your insurer can seek reimbursement from the at-fault person (or their insurance company).  If a deductible is involved in a claim involving subrogation, your insurer has to include your deductible in its subrogation demand to the at-fault party. After your company recovers costs, it will reimburse you for the deductible you paid. 

There are a couple of things to be aware of in subrogation, though.  First, if a loss investigation finds you are partially at fault, you will only recover a percentage of your deductible – if you are found to be at fault for 20 percent of the accident, then your insurer can recover only 80 percent of your deductible.  Worse still, if your insurance company pays your bills and you accept payment for the same bills from the other party’s insurance company your company will be looking to you for reimbursement. 

Subrogation is an important concept in insurance. When it is used, it helps to keep everyone’s costs down and it makes sure that liability insurance policies work as they are supposed to by making sure that the party who causes the loss pays.  

Telecommuters and Insurance

Telecommuting – working from your home or sometimes from an employer sponsored location makes you a part of a growing American phenomenon.  Estimates are there are more than 40 million telecommuters in the US today.  There are benefits to both employees and employers in telecommuting.  Employers reduce their facilities costs as they require less physical space; employees save on commuting costs.  It can be a win-win, however, both employee and employer also face some special insurance considerations.

As a telecommuting employee, you may have gaps in coverage that arise out of your work arrangement. If your employer provides items like fax machines, copiers, computers, monitors, printers, scanners, and smart phones, you may not have the insurance protection you need.  Typically residential insurance policies restrict or exclude coverage for business property and it is just that high end property that could be attractive targets for thieves.  Employers of telecommuters have the same issues.  Understanding that company owned property may not be well covered by a homeowners policy, employers need to review their coverage to assure employer owned equipment is safeguarded and appropriately covered.  

Your homeowners insurance policy that includes liability protection will generally exclude a business-related loss and decisions about “business” can get complex.   Where your homeowners insurance might respond to a household accident involving a neighbor, they might view the same incident differently if it involved a client.  Employers need to be mindful of this as well and make certain their liability coverage will extend to risks wherever their extended offices may be.

While telecommuting may not imply an extensive use of your personal vehicle, it is an area that deserves consideration.   Many instances of job related use could be excluded from your personal auto coverage, such as making deliveries or client calls.

Work related injuries are a very complicated aspect of telecommuting.  Worker’s compensation coverage may not apply to work-related incidents that occur at home.  To illustrate the complications, a telecommuter applied for workers’ compensation benefits when she was assaulted while preparing lunch in her home – an employer-approved office. The workers’ compensation carrier denied coverage on the basis the injuries did not occur in the course of employment. The courts ruled that since the employee’s home functioned as her work place and lunch was within the course of employment as breaks are reasonable parts of an employee’s work duties.  However, a compensable injury must come from a risk inherent to the nature of the employment and since the assault was not connected to the employment there was not a connection between the injury and the employment and benefits were denied.

Whether employee or employer, you should clearly document potential exposure to business losses, including the routine job duties performed in the home, potentially hazardous tasks, business visitors to the home office, the area of the home dedicated as a work area/office, the equipment used in the job and who owns each piece. 

Once there is a good idea of the risk exposures it would be worthwhile to talk with a Washington insurance professional who can help an employee find additional coverage and identify the coverage gaps that may be addressed by the employer. Telecommuting is liberating, but neither employee nor employer should give up important protection.  

Business Insurance – know your limits

Take a look at the insurance policy covering your business and you will see a section setting out your insurance limits.  As the operator of Sam’s Superior Services, for example, you might find:

Sam’s Superior Services

Coverage

Coverall Protection

Insurance Limit

$1,000,000

So, that’s pretty good, it looks like you have a million dollars in coverage.  You may need to look further to understand whether your policy offers coverage on a “per occurrence” basis or an “aggregate” basis.  If you coverage is on an occurrence basis, your insurance limit provides up to one million dollars of coverage for each and every eligible loss that takes place during the applicable (annual) policy period. The whole million is available to respond to each eligible incident that occurs during the policy period.

Things can get more complicated if your million dollar coverage is an aggregate limit.  That type of protection means that the million dollar limit applies over the entire policy period.  Why does this make a difference if it is still a million dollars?  Well, let’s say Sam’s Superior Services is less superior than advertised.

If Sam buys a $1 million aggregate policy for a Jan. 1, 2012 to Jan 1, 2013 policy period and Sam’s Superior Services is sued five times during the policy period that million dollar policy could be melting away.

Loss Date  Amount  Amount Paid  Available Aggregate Limit 
Loss 1  2-23-12  $200,000  $200,000  $800,000 
Loss 2  3-3-12  $450,000  $450,000  $350,000 
Loss 3  6-12-12  $175,000  $175,000  $175,000 
Loss 4  8-4-12  $300,000  $175,000  ($0 Available) 
Loss 5  12-6-12  $50,000  $0  ($0 Available) 
Total Paid      $1,000,000  $1,000,000) 

Under Sam’s “aggregate” limit policy, each loss reduced the available limit until coverage was exhausted. In this example, Sam’s Superior Services would have had to manage $175,000 on its own – $125,000 from the fourth loss and the entire $50,000 from the fifth.  Sam may want to improve his superior services or seek another line of work.

Insurance companies use aggregate limits to help control their financial exposure.  You should expect the premiums on an aggregate policy to be lower than a per occurrence policy reflecting this limitation.   There are other ways to control loss amounts and insurers may use sub-limits as a method to control losses on some types of policies. A sub-limit is a coverage amount that applies to only certain types of losses or to losses involving certain types of property. Sub-limits may be used with either “occurrence” or “aggregate” limit policies. To keep things less confusing, let’s use the same Sam’s Superior Services policy situation and adding an Occurrence policy with sub-limits. In this instance, the policy provides the following:

$100,000 Sub limit for Type B Losses

$50,000 Sub limit for Type C Losses

Loss Date  Amount of Claim  Amount Paid 
Type A Loss  2-23-12  $200,000  $200,000 
Type B Loss  3-3-12  $450,000  $100,000 
Type C Loss  6-12-12  $175,000  $50,000 
Total Paid    $825,000  $350,000 

In this case, even with a “per occurrence” limit, the sub-limits will have a substantial impact. In this instance, Sam’s Superior Services would be left to handle $475,000 in losses that wouldn’t be paid by the policy.

If you have a business insurance policy, you should “know your limits.” Talk to your Washington business insurance agent to be certain of exactly what your policies provide. A professional at Homer Smith insurance would be a good person to contact to discuss this very important issue.