United States District Court holds that insurance agent is an independent contractor

Thomas Ruggiero, an insurance agent, sued America United Life Insurance Company (AUL) and its subsidiary OneAmerica Financial Partners, alleging that they had misclassified him as an independent contractor. 

Ruggiero signed a General Agent's contract with AUL in February 2009, with the intent of establishing an agency that would sell AUL products.   AUL lent Ruggiero money to assist him in developing his agency.
 

Under his contract with AUL Ruggiero was to recruit, train and supervise agents and brokers for AUL in Massachusetts without exclusive representation, and to solicit applications for AUL's insurance policies. 

AUL would pay Ruggiero commissions and service fees on policies and contracts serviced by Ruggiero or his agents or brokers, as well as allowances, writing commissions, bonuses, and services fees. 

The contract classified Ruggiero as an independent contractor, and required him to pay his own expenses for maintaining an office. 

Under the terms of the contract Ruggiero was not permitted to act as a general agent, agency manager, or hold a full time contract with another insurer, or to enter into an employment contract or agreement without the approval of AUL. 

During his relationship with AUL Ruggiero also maintained relationships with numerous other insurance companies.  He never asked AUL permission to do so, and AUL did not believe that by doing so Ruggiero violated his contract with it. 

Ruggiero recruited and trained approximately thirty agents during his contract term with AUL.  Those agents entered into contracts with AUL and other insurers, at Ruggiero's direction. 

After winding down his agency, Ruggiero sued AUL and OneAmerica, asserting that he had been misclassified as an independent contractor. 

In Ruggiero v. Am. United Life Ins. Co., __ F. Supp. 3d __, 2015 WL 5822622 (D. Mass.), the United States District Court for the District of Massachusetts held that Ruggiero was an independent contractor under all three prongs of the independent contractor test. 

The court first held that Ruggiero was "free from control and direction in connection with the performance of the service."  Other than general principles the contract did not prescribe how the work was to be performed, and left Ruggeiro discretion in running his agency.  Certain requirements that were placed on Ruggiero were mandated by regulations and therefore did not affect his employment status. 


The court then held that the service Ruggiero performed was outside the usual course of the business of AUL.  Sales of AUL's insurance products were outside of AUL's usual course of business because AUL did not itself sell the insurance and financial products it offers.  Instead, it provides the products through a national network of agents.  While sales of the products are essential to AUL's business, it is not in the business of selling them directly; it is in the business of determining which products to make available, structuring and drafting the policies, and investing the policy premiums.  Within the insurance industry there is a recognized division between producing the insurance product (the insurance carrier) and selling it (the insurance brokerage or agency). 


Similarly, Ruggiero's services in recruiting and training career agents and brokers were outside of AUL's usual course of business.  Ruggiero was acting in his own interest in doing so because he would receive a commission for the sales attributable to them.  Those services were in the interest of AUL only to the extent that they generated sales of AUL products, rather than products of other insurers. 


Finally, the court concluded that Ruggiero was customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.  Ruggiero was in the business of selling insurance products, and  sold the products of both AUL and other insurance companies. 

Attendant Care Benefits Provided by Family Members

Section 2 of Ontario Regulation 347/13 came into force on February 1, 2014.  It provides that accident benefits for attendant care provided by a family member are limited to the family member's economic loss.  A recent case dealt with whether the provision should be applied retrospectively.  Justice Quinlan held that it should not.

In Davis v Wawanesa, 2015 ONSC 6624 (S.C.J.), the plaintiff was involved in a motor vehicle accident in November 2013, before the Regulation came into force , but the claim for attendant care services was made after the Regulation was enacted.  It was the plaintiff's position that since she was involved in the accident prior to the date that the Regulation came into force, there should not be a cap on the attendant care benefits.

The parties differed in their positions as to whether or not Regulation 347/13 should apply retrospectively or prospectively. The Regulation is silent on the issue of whether it applies to accidents that occurred before its enactment. The court held that since the presumption against retrospectivity was not rebutted by clear, legislative intent, the law that applied was the law that was in force at the time of the accident. Thus, Section 2 of Ontario Regulation 347/13 did not apply and the attendant care benefits were not capped at the economic losses suffered by the attending family member.

The court accepted that attendant care benefits are a contractual right to which an injured person is entitled and the plaintiff had a vested right to payment of the attendant care benefit to which she was entitled on the date of her accident. Regulation 347/13 had a substantive impact on the plaintiff's right to attendant care benefits, so the court held that retrospectivity in this case would be undesirable. Since the Regulation interfered with the plaintiff's substantive rights, the court held that it should not apply retrospectively.  

Insurance News - Wednesday, January 27, 2016

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Wednesday, January 27, 2016:

• Kathleen Wynne says pledge to cut auto insurance 15 per cent was a ‘stretch goal’ - classic govt speak!
• Ontario's finance minister is hard-pressed to explain why he continued to declare publicly that the government would meet an election pledge to cut auto insurance rates despite being aware that keeping the promise would be challenging.
• Canadians are wary of self-driving cars.  They would rather see technology make driving safer.
• Google's monthly report for its self-driving car project is in, and according to data recorded by onboard computers, the car's human drivers intervened 13 times between September 2014 and November 2015 to avoid an accident.
• Is State Farm preparing for the end of auto insurance?
• The biggest roadblock facing driverless cars is not government regulation but lawyers.
• Windsor wants to become test site for self-driving vehicles.

Insurance News - Tuesday, January 26, 2016

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Tuesday, January 26, 2016:

• Town of Stratford has built connected infrastructure to attract self-driving cars for testing over the past decade.
• Uber's impact being felt as San Francisco's largest cab company Yellow Cab to file for bankruptcy.
• Why baby boomers embrace sensor-driven cars, but doubt self-driving cars.
• While claiming their self-driving cars have not caused an accident, Google also reports self-driving car mistakes: 272 failures and 13 near misses.
• Google wants to form more partnerships with automakers and suppliers in 2016 to accelerate work on self-driving cars.
• Obama boosts self-driving car development with $4 billion investment.

Thoughts on the upcoming Restatement of the Law of Liability Insurance

Last week I posted about the January 22 Insurance Law Symposium sponsored by the American College of Coverage and Extra-Contractual Counsel.  It was a great conference, with excellent panel discussions on emerging issues in coverage law and on ethical issues relating to the tripartite relationship. 

Several of the discussions were devoted to the Restatement of the Law of Liability Insurance, which is currently being completed.  Although I had been vaguely aware that the Restatement was in the works, it was fascinating to get the details. 

Restatements are books that provide guidance on a particular area of law.  They are published by the American Law Institute, and are highly regarded by judges.  Where an issue of law is undetermined in a particular state, judges will often turn to Restatements as at least a starting point (and not infrequently an end point) for their analysis.

Restatements provide general principals of law followed by comments that explain the principle more fully and give examples of how it is applied. 

One of the presenters at the conference, Kyle Logue of the University of Michigan Law School, is one of the two reporters for the Restatement of the Law of Liability Insurance.  That means that he is responsible for drafting, getting comments, redrafting, getting more comments, redrafting . . .  He discussed the history of the project and how the reporters make choices about the content of the Restatement.

When it is completed the Restatement will have four chapters:  Basic liability contract rules, management of potentially insured liability claims, general principals regarding the risks insured, and advanced contract issues.  The first three chapters are in close to final form.  The draft document is available on Westlaw (and maybe Lexis; I didn't quite catch it). 

By the end of Professor Logue's presentation I had the distinct idea that the existence of the Restatement will work in favor of insurers at the expense of insureds. 

The Restatement of the Law of Liability Insurance differs from other Restatements in an important manner: it sets forth principles that can easily be made inapplicable, without the intervention of legislation or judicial opinions.  And that action can be done in in response to the very principles set forth in the Restatement. 

According to Professor Logue, with the exception of rules with respect to contract interpretation and bad faith, any principle in the Restatement can be overcome by changing policy language. 

As an example, the Restatement provides that in long tail losses a pro rata time on the risk method of allocation should be used.  (A long tail loss is a loss, such as a hazardous waste site, that occurs over a number of years before being discovered.  Because of the length of the occurrence many annual insurance policies are triggered and the damages must be allocated among them.)  

While pro rata time on the risk allocation is the law in Massachusetts, many states use the all sums approach to allocation.  Pro rata allocation tends to favor insurers, because the insured is responsible for the percentage of loss allocated to periods of time when there is no coverage due to lost policies, insurers who have since gone out of business, or applicable exclusions in some policy years.  All sums allocation tends to favor insureds, because they can choose one insurer to bear the initial burden of paying the loss up to the policy limits; it is up that insurer to reallocate the loss among other insurers on the risk.

The reason the Restatement will benefit insurers at the expense of policy-holders is not because the particular allocation principle the drafters chose favors insurers; that's just an example of a split rule where the drafters chose one side.  The Restatement will benefit insurers because it provides that any rule it sets forth can be changed by new policy language.  So if a policy expressly states that an all sums method of allocation will be used, then the Restatement's principle of pro rata allocation will not apply.

Insurers, however, will not change policy language that favors them.  For example, they will not adopt policy language requiring all sums allocation. 

And, in general, it's insurers that write the policies.  ISO forms, standard forms used in many insurance policies, are developed by Verisk Analytics, a company that provides services to insurers, not policy-holders.

There is no ISO equivalent for policy-holders.  While some large entities can and do negotiate policy provisions with their insurers, such negotiations do not result in the issuance of standard forms used in many policies.  Smaller business and consumers very rarely negotiate terms.   

Insurers are repeat players in the industry and therefore have the incentive and the economic means to change policy terms that policy-holders simply do not have.  Homeowners insurers in Massachusetts probably adjusted tens of thousands of water dam claims last winter.  But each homeowner made only one claim.  An individual homeowner has no incentive to try to change policy terms that worked against him or her; new terms in a future policy will not affect the adjustment of a loss that has already happened.  But the insurance industry, in anticipation of more ice dam claims, has every reason, and the economic power, to change policy terms that don't favor it.

Therefore insurers will change the policy provisions where the Restatement principles favor the policy-holders, but the reverse is not true.  In time, the policy terms that the Restatement interprets in a manner that favors insurers will remain, while the policy terms that the Restatement interprets in a manner that favors policy-holders will be changed.

For that reason, regardless of whether the Restatement principles as written collectively favor insurers or policy-holders, or are overall neutral, the eventual net effect of the very existence of the Restatement will be to benefit insurers to the detriment of insureds. 

The Importance of Clearly Drafted Waivers

The recent Superior Court of Justice decision of Levita v Crew, 2015 ONSC 5316 (S.C.J.) shows the value of a clearly-worded, comprehensive waiver in assisting the host and participants of an inherently risky activity to avoid liability.   

The plaintiff, Mr. Levita, and the defendant, Mr. Crew, were both players in a hockey league operated by the defendant, True North Hockey Canada. The league operated with a multi-tiered penalty system which penalized intentional contact and included sanctions up to and including ejection from the league.  Prior to the start of each season the league distributed a waiver which outlined the risks inherent in ice hockey, the potential consequences of these risks, and an acknowledgement that by signing this waiver a player was accepting these risks by stepping onto the ice and playing. This waiver was distributed in each team’s locker room before the first game of the season: no player was permitted on the ice until he had signed.

The plaintiff alleged Mr. Crew deliberately attempted to injure him after he had passed the puck.  Mr. Crew's version was of an accidental shove while trying to take the puck. Mr. Levita broke his tibia and fibula to the extent that it required multiple surgeries to repair.

The court held that the conflicting stories of the incident made it impossible to determine whether Mr. Crew deliberately or recklessly injured Mr. Levita, noting that testimony had indicated that ice conditions were such that even minor, non-penalty worthy contact could lead to this outcome. Mr. Crew was found not liable to the plaintiff.

The court also dismissed the action against the league.  Firestone J. held the waiver was clear and unambiguous as to the risks and dangers that a player was accepting by signing it and agreeing to play. The court did not give credence to the plaintiff’s claim to have not understood the waiver prior to signing it, noting that the plaintiff was a lawyer by trade who understood the “legal significance of signing a waiver document”. The court found that even if the league had been negligent in its duty to the plaintiff to provide a safe league in which to play hockey, the waiver provided it a complete defence to the claims against it.

 

Ontario's Failed Rate Reduction Strategy

The promise to reduce auto insurance premiums by 15% is a failure.  

In August 2013 the Ontario government announced a two-year rate reduction strategy. What has ensued since that announcement has been a series of reforms to bring down the cost of insurance. Many of those reforms include no-fault accident benefit reductions.  

So how successful has the strategy been?  Last week FSCO posted the fourth quarter rate approvals for 2015. The FSCO post indicates that rates fell a minuscule 0.15% in the quarter. For the entire year, rates fell by just 1.0%.  Since August 2013, rates have only come down by 7.1%.  That's not even half of what the government has been trying to achieve.

Premier Kathleen Wynne now calls the 15% rate reduction strategy a "stretch goal".  That's as close as you're going to get a government to admit to failure.  

Another round of no-fault accident benefit cuts are to be introduced on June 1 of this year but don't expect them to bring down rates by a significant amount. The accident benefits portion of the Ontario in 2014 was only 33.5% of claim costs (see the chart below).  That would mean for a further 8% reduction in premiums, accident benefit costs would have to go down by about 24%.  Meanwhile, some of the accident benefit cuts will drift over to third party liability costs since not at-fault accident victims will be able to sue for benefits no longer available through no-fault.

It's time the government undertake a comprehensive review of the auto insurance system and resolve the systemic problems plaguing the system.  Half measures lead to "stretch goals" and chronically high insurance premiums.

Insurance Law Symposium at Boston College on January 22, 2016

The American College of Coverage and Extra-Contractual Counsel (ACCEC) is sponsoring an Insurance Law Symposium at Boston College on Friday January 22, 2016.

Michael Aylward, one of the organizers, writes: 

It isn’t often that you can get cutting edge insurance CLE this close to home, much less a program with speakers from firms such as Covington & Burling, Jenner & Block, Perkins Coie and Wiley Rein.  This year’s symposium will feature panels discussing new trends in intellectual property claims; new coverages for cyberpiracy, the criminalization of D&O liability claims and ethical and bad faith problems arising out of the defense of disputed coverage claims.   A substantial portion of the program will also focus on the American Law Institute’s nascent Restatement of the Law of Liability Insurance, including presentations by one of the Restatement reporters and Justice Herb Wilkins, who is an Advisor to the Project.

The registration brochure, including the agenda, is here.  Note that online registration is not available.  The registration deadline is Friday, January 15, 2016.

 

Insurance News - Monday, January 11, 2016

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Monday, January 11, 2016:

• Sidecar, the third-biggest U.S. ride-sharing service, has ceased operating as the company is squeezed out by better-known competitors Uber and Lyft.
• Plaintiff’s lawyers are encouraged at the prospects for big court awards from accidents self-driving cars. With no one behind the wheel, lawyers say they can go after almost anyone even remotely involved.
• General Motors and ride-sharing company Lyft are forming an unprecedented partnership that could help them beat their rivals to the self-driving future.
• The big data of bad driving, and how insurers plan to use technological to assess risk and set premiums.
• Aviva Insurance plans to support Uber drivers in Canada with special coverage, a move that could give comfort to users of the ride-sharing service, and one that will likely disrupt the taxi industry further.

Ontario Moves Forward with Regulating the Towing Industry

Ontario consumers and insurers have had many long-standing complaints about the practices of towing operators.  Back in 2012, the Auto Insurance Anti-FraudTask Force, created by the Minister of Finance, recommended a number of changes regarding the regulation of towing services.  Last year the Ontario Legislature passed Bill 15, a wide-ranging piece of legislation that will have a significant impact on the towing industry. 

Changes will be made to the Consumer Protection Act and its regulation, establishing tow and storage-specific consumer protection measures effective January 1, 2017. They will require tow and storage providers to:

• Get permission from a consumer or someone acting on their behalf before providing tow and storage services.
• Record the name and contact information of the consumer, along with the date and time of authorization.
• Disclose certain information to the in writing, such as the provider's business name, contact information and address where the vehicle will be towed.
• Accept credit card payments, in addition to cash, from consumers.
• Provide an itemized invoice, listing services provided, the cost for each service, and the total cost before demanding or receiving payment.
• Make available a current statement of rates at their place of business and on any existing website.
• Post other information, for example, the provider's name and telephone number on the side of a tow truck, at all business premises and on any website.
• Provide a consumer with access to the towed vehicle, at no charge, so that they may remove personal property from the vehicle.
• Prohibit tow and storage providers from recommending repair and storage facilities, legal service providers or health care service providers unless a consumer specifically asks, or the provider offers to make a recommendation and the consumer agrees.
• Disclose to a consumer whether the provider is getting a financial reward or incentive for providing a recommendation for towing a vehicle to a particular storage or repair shop.
• Establish minimum insurance coverage including general liability insurance of $2 million, customer vehicle insurance of $100,000 and $50,000 cargo insurance.
• Maintain authorization and disclosure records, invoices, copies of insurance policy, and current statement of rates for three years.                                         

There are some exemptions, such as, if services are provided under a prepaid agreement or membership in an association, such as the Canadian Automobile Association (CAA) where the consumer is not being charged for the specific service being provided.  These exemptions will also apply when the tow and storage services are provided when a vehicle is purchased or leased and the consumer is not charged for the specific service being provided.

The Repair and Storage Liens Act deals with the rights of repairers and storers to claim a lien against vehicles they repaired and/or stored.  Most of the changes to the Repair and Storage Liens Act will take effect on July 1, 2016 The new regulations are designed to eliminate overcharging for vehicle storage and make it easier for vehicle lien holders to find out that the vehicle is in storage in the first place. 

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Changes to the Repair and Storage Liens Act and its regulation will:

• Reduce the notice period from 60 days to 15 days for vehicles registered in Ontario. The new rules are expected to improve storage practices and remove associated costs from the auto insurance system.
• If the notice is not provided, a lien is limited to the unpaid amount owing for the period of 15 days from the day of receiving the vehicle.
• Provide guidance to courts in determining the "fair value" of repair or storage where no amount has been agreed upon. A list of discretionary factors (e.g., fixed costs, variable costs, direct costs, indirect costs, profit and any other relevant factors) is set out for consideration.

 Finally, the government is adding regulations under the Highway Traffic Act that will bring tow trucks under the Commercial Vehicle Operator's Registration (CVOR) system. Tow trucks and other towing vehicles will require a CVOR certificate.  The CVOR system is used to track the safety of truck and bus operators in Ontario.  This new regulation will come into effect on January 1, 2017.

Under CVOR, tow operators will be responsible for all the drivers and vehicles in their operation. These responsibilities include:

• Monitoring the conduct and safety performance of drivers.
• Resolving driver safety issues when they are identified.
• Keeping vehicles in good, safe condition at all times.
• Ensuring load security. 

Tow trucks will continue to be exempt from some requirements faced by other classes of vehicle under the CVOR system, such as hours of service limits, daily inspection, detailed recordkeeping requirements and entering truck inspection stations, until the government has concluded consultations with the towing industry and other stakeholders on an effective regulatory regime for tow trucks.