July 2009

W9/PHC Real Estate LP and Grubb & Ellis Management Services, Inc. v. Farm Family Casualty Insurance Co., N.J. App. Div. May 20, 2009

In a declaratory judgment action presented to the New Jersey Appellate Division, defendant Farm Family Casualty Insurance Company (Farm Family) appealed from an order directing it to reimburse W9/PHC Real Estate LP and Grubb & Ellis Management Services, Inc. for half of the defense costs and indemnification of a slip-and-fall suit for damages. Crabtree Landscaping and Turf Management, LLC (Crabtree), a company hired by plaintiffs to remove snow from their property, was also a defendant in that action. W9/PHC sought coverage as additional insureds under Crabtrees’s liability insurance policy with Farm Family.

In its opinion, the appellate division succinctly described the issue before it as follows:

This appeal presents the issue of the obligation to pay for a liability insurance claim and counsel fees where two insurers have conflicting “other insurance” clauses, one providing for “pro rata” payment, and the other for payment only when the other insurer’s limit is exhausted.

Continue Reading A Flush Beats a Straight and Excess Other Insurance Beats Pro Rata Other Insurance

Releasing reserves based on early developments is an optimist’s view, [Evan Greenberg, chairman and chief executive officer of ACE Limited] said. “Good news comes early in the casualty business. The bad news always comes late,” he said.

“I do think some companies have released reserves early in an effort to goose earnings,” he said. “It may come back to bite them.”

As discussed in my prior post P&C fundamentals are pretty bad. According to reports, the only way that insurers showed profits in recent periods was by playing games with their reserves. That is, they revised downward their view of prospective losses to allow them to release reserves, improving the bottom line (on paper, anyway). Such releases covered up “a multitude of sins.”

A report of a Standard & Poor’s June conference on the subject is enlightening and alarming:
Continue Reading When will the chickens come home to roost? Insurers Use Reserve Releases to Buff Up Underwhelming Financials

P&C insurance companies are in a tough spot right now. According to a recently released Insurance Services Offices report, their margins have dropped below break-even.  Investment income has fallen through the floor, and the commercial mortgage backed securities market hasn’t even begun to take the hit that analysts predict it will. On top of that, premiums are shrinking, not rising. Not only are rates still dropping but so are the sales and payroll numbers on which the premium rates are computed. As reported in BestWire

… the recession has left commercial insurance buyers with fewer employees and fewer risks to insure. “Our customers are smaller than they were a year before,” [Mario P. Vitale, chief executive officer of global corporate for Zurich Financial Services] said.

How does the shrinking customer impact rates? As succinctly explained by Steve Tuckey:Continue Reading Insurers Wait for a Hard Market: If Only Wishing Could Make It So