About Caroline McDonald

Caroline McDonald is a writer and former senior editor of the Risk Management Monitor and Risk Management magazine.
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Sentencing Begins in 2014 W.Va. Chemical Spill Disaster

Elk River

Robert Reynolds, a former environmental consultant at a chemical distributor was sentenced to three years’ probation and fined $10,000 for a 2014 chemical spill in West Virginia that polluted the drinking water supply of 300,000 people. Reynolds was the first of six former Freedom Industries officials to be sentenced, the Associated Press reported.

The incident began on Jan. 9, 2014 when authorities discovered that 7,500 gallons of chemicals—mostly 4-methylcyclohexane methanol (MCHM) and PPH (polyglycol ethers), both used to clean coal—had leaked from an aging storage tank owned by Freedom Industries into the nearby Elk River.

Questions arose concerning the tank’s close proximity to a water treatment plant and, after the West Virginia American Water Company reported that its water supply had become contaminated, Gov. Earl Ray Tomblin issued a State of Emergency for Boone, Cabell, Clay, Jackson, Kanawha, Lincoln, Logan, Putnam and Roane counties. “West Virginians in the affected service areas are urged NOT to use tap water for drinking, cooking, washing or bathing,” Tomblin said in a statement.

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Rafael Moure-Eraso, chairman of the United States Chemical Safety Board, warned in a Jan. 28, 2014 New York Times op-ed: “The United States is facing an industrial chemical safety crisis.

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It is clear to me, as chairman of the independent federal agency charged with investigating industrial chemical accidents, that urgent steps are required to significantly improve the safety of the nation’s chemical industry.”

About 13,000 facilities nationwide store or process chemicals in amounts hazardous enough to endanger the public, according to the Environmental Protection Agency. This estimate, however, understates the scope of the problem. “The West Virginia facility implicated in the recent spill…would not fall under criteria used by the agency to come up with its estimate,” Moure-Eraso said.

Time for Post-Storm Claims Filing

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Record-breaking Storm Jonas, which struck a large portion of the East Coast last weekend, was yet another reminder to have property insurance policies up to date and be familiar with claims procedures. To get the claims process moving, risk professionals whose business suffered damage should contact their insurer and broker as soon as possible.

According to the Insurance Information Institute, business owners need to:

▪ Fill out claims forms as soon as possible—including a “proof of loss” form, which must be completed within 60 days.

▪ Make a list of damaged property; the more detailed the better. Take photos or video to back up the claim.

▪ Be prepared to show the adjuster the damaged property as well as financial records or other documents.

▪ Get at least two bids for repairs or replacements.

▪ Keep copies of all correspondence regarding the claim and note the name, title and phone number of everyone you speak with. For more details, see Filing a Business Insurance Claim.

 What Is, and Is Not, Covered 

Business property owners also need to understand what is and is not covered by insurance, and the various coverage options available to protect their business. Property damage is typically covered under a business owners policy (BOP) or through a commercial multi-peril (CMP) policy.

Most commercial property policies provide either:

Replacement cost coverage – pays to rebuild or repair the property, based on current construction costs.

Actual cash value coverage – pays to rebuild or replace the property minus depreciation

Depreciation is a decrease in value due to wear and tear or age so with actual cash value coverage a business that is destroyed may not be in a position to completely rebuild. Business owners can also opt for a combination of both types of coverage.

Business income insurance, also known as business interruption, is typically included in a BOP or CMP and provides coverage for:

▪ Revenue lost due to the closure.

▪ Fixed expenses, such as rent and utility costs.

▪ Expenses of operating from a temporary location.

To receive appropriate reimbursement from business interruption coverage, there must be direct physical damage to the property resulting from an insured event. Also, there is generally a 24- to 48-hour waiting period before business income coverage kicks in.

Determining a business interruption loss involves establishing what the business would have earned had there been no loss. Insurers will consider past tax returns, profit and loss statements, projected sales and non-continuing expenses.

If basic business interruption insurance and property insurance coverage was expanded to include utility interruption, you may be covered if either electrical or water service was discontinued as a result of the storm.

Businesses that rent or lease a building can purchase tenant coverage, which insures your on-premises property, including machinery, furniture and merchandise. The building owner’s policy will not cover contents, however.

At Risk for Flood Damage?

Location is the most important factor for weighing your risk for flood damage. Is your business located in or near a flood zone? (Flood map search tools can be found online.) In what part of the building is your businesses equipment and inventory located? Anything housed on a lower floor, for instance, will be at greater risk.

Standard commercial insurance policies exclude flooding from melting snow or tidal surge. Commercial flood coverage is available from the National Flood Insurance Program (NFIP) and from a few private insurers. The NFIP provides up to $500,000 in building coverage and $500,000 for contents. Excess flood insurance is also available for businesses.

For more information on coverage options and disaster preparedness, see the Business Insurance section of the III website.

Related Links

▪ Facts and Statistics: Catastrophes

▪ Articles: When Disaster Strikes: Preparation, Response and RecoveryDoes My Business Need Flood Insurance?Does My Business Need Earthquake Insurance?Does My Business Need Terrorism Insurance?;

 

Captive Regulators Disappointed in New FHFA Rule

A final rule released by the Federal Housing Finance Agency (FHFA) amended its regulation on Federal Home Loan Bank (FHLB) membership to specify that captive insurance companies can no longer be used as a conduit to membership of the organization. Membership offers entities access to low-cost FHLB funding and other benefits. Because insurers may become FHLB members, along with credit unions and savings and loans, the Federal Home Loan Bank Act has been revised to specify that the term “insurance company” excludes captives.

Housing regulators have viewed captive insurers as a loophole used to access low-cost, government-backed financing. “Real-estate investment trusts that invest in mortgages are normally ineligible for home-loan-bank membership, but over the past few years have created captive insurers to gain indirect access to cheap federal funding,” The Wall Street Journal wrote.

As a result of captives being admitted as members, “25 are owned by entities that are not themselves eligible for membership.” The FHFA said it is “concerned that this practice will continue to grow and there is no reason to believe it will not grow to include entities other than REITs (Real Estate Investment Trusts), such as hedge funds, investment banks and finance companies, some of which have already inquired about establishing captives to gain access to the FHLB System.”

FHFA Director Melvin L. Watt said in a statement, “FHFA has the authority and the duty to implement the statutory membership provisions of the Federal Home Loan Bank Act and by adopting the proposal to exclude captives from the definition of insurance company we are making sure that institutions can’t frustrate the intent of Congress.” He added, “Congress has amended the Federal Home Loan Bank Act in the past to allow additional entities to become members of a Federal Home Loan Bank and it can certainly do so again if it wants some of these entities to be eligible for membership.”

Captive regulators of Vermont and Delaware expressed disappointment in the decision. David Provost, deputy commissioner of captive insurance of the Vermont Department of photo_provostFinancial Regulation, said, “Vermont’s response to the proposed rule was pretty straightforward: Don’t ban captives from FHLB membership just because they are captives. Captive insurance companies are regulated insurance companies, licensed for a particular purpose, and regulated in a manner commensurate with their risk,” he said.

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Steve Kinion, director of the Bureau of Captive and Financial Insurance Products for the Delaware Insurance Department said, “The Delaware Insurance Department is disappointed that the Federal Housing FinancSteve Kinion (2)e Agency made the decision it made. In at least two comment letters, one in 2012 and the other in 2015, we have made attempts to work with the Federal Housing Finance Agency to help it understand captive insurers.” He added that what has been disappointing is that “our offers were never accepted. Delaware Insurance Commissioner Stewart continues to believe that captive insurers that are members of the FHLB system are well regulated and contribute to the FHLB’s mission of fostering housing in the United States.”

Kinion explained that that REITs have long sought membership in the Federal Home Loan Bank system, which was formed in 1932 to provide liquidity for the housing market. Because current law states that only certain types of institutions may become Home Loan Bank members, “captives have been a portal for membership. It’s unfortunate when well-regulated captive insurers are excluded from membership.

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 I only wish that, before it issued its regulation, the FHFA would have allowed me the opportunity to show what Delaware does at the state level to regulate captive insurers.”

Delaware had been seeing increased interest in REITs. The domicile has one such captive and others were in the pipeline. One reason Delaware likes them is the revenue they bring in. “Our regional Home Loan Bank is in Pittsburgh and 10% of the profits generated have to be designated for affordable housing programs,” Kinion said. “In Delaware, there are a number of organizations that receive grants from the bank to promote affordable housing, and that benefits the state.”

The REITs captive program was fostered by Delaware Insurance Commissioner Karen Weldin Stewart. Her rationale was that, through the program she could “help with affordable housing in Delaware, which she can’t do directly as insurance commissioner,” Kinion said. “This was an indirect means of helping Delaware’s affordable housing programs.

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Provost said that while he supports REITs captives, the new rule will have a negligible impact on Vermont. “We have studiously avoided jumping on bandwagons of forming captives that have no apparent insurance purpose solely for some ancillary advantage,” he said. “We have allowed captives to apply for membership to the FHLB, and so far five have joined. They will have one year or five years to leave the FHLB system, depending on when they joined.”

Kinion noted, “I wish the FHFA would have at least talked to us, so they could have seen how we regulate captive insurance companies. If regulation is a concern, they should have at least taken a step to find out what we do at the state level. But that didn’t happen.”

Rules Needed for Office Lottery Pools

Powerball

With the current Powerball Jackpot estimated at $1.4 billion, the highest amount ever, people everywhere are lined up to buy tickets—and making plans for their winnings. The odds of winning Powerball, however, are one in 292,201,338. Meanwhile the odds of being struck by lightning in any given year are one in 700,000.

To maximize their odds of winning, many form pools to purchase more tickets. Often this takes place at work, but if a company is located in a state where the lottery or gambling is illegal, an office pool may not be a good idea.

Powerball tickets are sold in 44 states, as well as Washington, D.C., the U.S. Virgin Islands and Puerto Rico. They are not allowed to be sold in Alabama, Alaska, Hawaii, Mississippi, Nevada and Utah.

“Even if you pool your money and then buy a ticket from another jurisdiction, the criminal statute may still apply. You were arguably participating in and promoting a lottery within the state,” Stephanie Rabiner wrote.

Employees of the U.S. government should also be aware that they are prohibited from taking part in any gambling activity on government-owned or government-leased property, or when they are on duty for the government.

But with so much money at stake, what could go wrong? Plenty, and with the jackpot so high, the likelihood for complications is also increased.

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Midge Seltzer, president of Engage PEO, lists a few of the potential problems and steps that can be taken to circumvent them.

Potential issues:

  • Employee claims he or she bought the winning ticket and was not part of the pool.
  • Employee only verbally said, “I’m in,” or “Yes, and I’ll give you the money tomorrow.

  • Participants aren’t actually known, because the pool is so loosely handled.
  • An employee had participated previously, but was absent to contribute to this pool.

Guidance:

  • Ensure that all participants pay prior to purchase of lottery tickets.
  • Choose a leader—the employee who will be responsible to purchase the tickets and put them in a safe place.
  • Make copies of the tickets.
  • Have all participants write and sign their names and have the lead confirm that he/she paid for the tickets.
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  • Agree beforehand how employees will choose the numbers (at random or set numbers).
  • Agree beforehand whether employees will take a lump sum or payout.

What are the most popular states for Powerball?

Residents of Rhode Island have bought the most Powerball tickets, with an average of 3.44 tickets per person since the last jackpot was won on Nov. 4, according to consumer finance website ValuePenguin.

The top 20 states for per-capita participation in Powerball:

Top-20 States for ticket sales