Tag Archives: landlord

connected

How to Insure the Sharing Economy

During the snowstorm that hit the East Coast in January, I took some time to clean up my office and read reasonably current newspapers and trade magazines. I quickly identified many opportunities for new insurance products, mostly around shared assets. For example, an article on Millennials and the sharing economy explained that (primarily young) people make money by sending selfies of what they are wearing every day to a website called CovetMe; they get paid based on the brands and looks they are sporting.

They Uber their way to work, school or social events (when did Uber become a verb?) as a driver or passenger; they use their subscription to a shared car service such as Zipcar to take occasional trips; or they get paid for allowing advertising on their own car by subscribing to companies such as Carvertise. FlightCar gives you free parking at big airports if you let other travelers use your parked car when you are traveling. Similar sharing activities take place with homes, clothing and accessories, occasionally used tools and equipment and even medical equipment.

All these shared assets need to be covered in different ways than the traditional, personal lines homeowner’s or car insurance policies. Occasionally renting out assets to third parties or shared ownership of one asset between non-family members creates a different risk profile than self-use only, both for property coverages and especially for liability.

Think about deductible coverage between multiple owners in case of a claim, good driver discounts or multiple non-familial owners getting involved in the same accident, as liable parties and as claimants. The insurance market has been pondering insurance solutions for the shared economy for a while now and found ways to cover Uber drivers or Airbnb landlords or offer non-owner car insurance. As an industry, however, we defaulted to our classical model of insurance and put a commercial coverage, bought by the shared economy company for their members,  on top of individual personal insurances where needed.

It works, but, as one can imagine, it is a bit clunky. Especially on larger claims, I expect delays and issues to occur concerning liability, wear and tear, acceptable use of assets and confusion around which policy should pay followed by subrogation. Now, most shared-economy companies have stated that they will reimburse their members for losses and will figure out later what is covered by which insurance. This is a good thing for their members, of course, but it doesn’t necessarily help insurers very much.

We should be able to do better and create truly new insurance coverages for the shared economy. For example, why wouldn’t an insurer work with one of the new tech companies that provides people with a cloud solution to document all of their assets with pictures, videos, sales receipts or warranty documents? Why wouldn’t an insurer create a comprehensive coverage for property and liability for all these clients’ assets, under the assumption that they will be shared? Tag the key assets with a sensor and learn from usage data. Use telematics data on the car use. Limit home rentals to one or two partner companies and learn from usage analytics.

Why wouldn’t a carrier try a pilot with a segment of young people with limited assets, in a single location?

I know that this is not a simple proposition and that, in creating these kind of coverages, many hurdles will be encountered. I do think, however, that the market is ready, and that the sharing economy will become a force to be reckoned with soon. So, we might as well figure out how to insure and service that force.

As my colleague Mark Breading stated in his recent research brief, Insurance in the Connected World: Observations on Opportunities and Threats, “Actively participating in the rapidly growing sharing economy will be critical for personal lines insurers. Asset ownership is shifting and requiring a different approach for managing and protecting the assets.”

It is not going to be easy, but customers will count on our industry to develop solutions to protect their shared assets. We have successfully been supporting changing economies and technologies for centuries now – I am sure we’ll also find a solution for the new sharing economy in a connected world.

Slumlord Must Repay Insurer for Settlement Contribution

Insurers Should Never Allow Slumlord to Profit From Bad Acts
In Axis Surplus Insurance Company v. Reinoso No. B228332 (2012) WL 2389324) an insurer, under a full reservation of rights, including the right to recover any costs of defense or settlements paid, defended Edgar and Linda Reinoso from claims by their tenants. Evidence, as the defense progressed clearly established that the Reinosos operated rental properties in a manner that allowed infestations of insects, vermin, and rats. Mr. Reinoso had pleaded no contest to at least two charges about properties he owned and was classified as a “slum lord.”

Ultimately, the tenants settled their claims against the Reinosos and their management company, Proud American, for over $3 million, with Axis contributing over $2 million under a reservation of rights.

Axis sued the Reinosos and Proud American for reimbursement of defense and settlement costs, based on the policy’s exclusion for injuries that were “expected or intended from the standpoint of the insured.” The trial court awarded Axis recovery of its $2 million+ settlement contribution, concluding that Axis had proven that the tenants’ claims were not actually covered.

The California Court of Appeal affirmed the judgment allowing Axis reimbursement of its settlement contribution and found wanting Mrs. Reinoso’s argument that she was an “innocent” insured and that the exclusion for “expected or intended” injuries thus did not apply to her.

Since an insurer only has a duty to indemnify the insured for covered claims, and no duty to pay for non-covered claims because the insured did not pay premiums for such coverage, and since both Reinosos owned and operated the apartment complex in a manner that damaged their tenants and profited from the operation of the apartments Mrs. Reinoso was not innocent of the charges made by the tenants. Since evidence showed that Linda had a sufficient benefit from the settlement such that not to allocate to her joint and several liability to the insurer of the full amount paid by the insurer to settle the Tenant Action the Court of Appeal concluded would amount to unjust enrichment.

Mrs. Reinoso was a co-owner of the property in question with Edgar, and the property was held as community property. She participated in the management of the property. Defendants in a joint venture are jointly and severally liable for non-economic damages whatever their respective interests in the joint venture. Moreover, Linda’s community property interest would be liable for obligations in connection with the property. Faced with exposure of many millions of dollars, perhaps up to $30 million, and punitive damages, Linda received the full benefit of the settlement.

The Court of Appeal agreed with the trial court that the insurer was entitled to reimbursement of the amounts it contributed to the settlement.

Conclusion
When defending a case under a reservation of rights it is imperative to, as did Axis, properly reserve rights to contribute to a settlement. If done properly it is imperative that the insurer then file suit to recover the amounts paid if the insured will not voluntarily pay.

To do so, the Court of Appeal noted, that the insurer must create and deliver to the insured:

  1. a timely and express reservation of rights;
  2. an express notification to the insureds of the insurer’s intent to accept a proposed settlement offer; and,
  3. an express offer to the insureds that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement.

Axis did so, and all insurers considering paying a settlement in a case where there is no coverage for indemnity should follow the recommendation.