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Actual Cash Value (ACV) Vs. Replacement Cost Value (RCV)

Actual Cash Value (ACV) Vs. Replacement Cost Value (RCV)

Buying items is simple. Selling things is a little more difficult, but still fairly straightforward. As long as humans have been around, we’ve been giving value to certain items, whether it be monetarily or otherwise. “How much does it cost?” isn’t that complex of a question – until it is.

So when it pricing complex? Pricing becomes a problem when claims adjusters get involved. Finding a definitive price for an item not on the market, after depreciation, and so forth is an art form. Well, more like a science. So how do claims adjusters find the true or definitive price of an item?


The Basics

Enter actual cash value (ACV) and replacement cost value (RCV). Actual cash value is the cost to replace an item minus depreciation. Replacement cost value is the cost to replace the asset at the full present value.

While these concepts may seem straightforward, things can get complex quickly. Adjusters not only need to decide on the value of an item, but there are also numerous local and state laws that can impact how ACV and RCV are calculated.


Diving Into Differences

Each state tends to handle ACV and RCV a bit differently. For instance, California includes an interesting tidbit in their legislation regarding these issues. In California:

“Actual cash value is the amount it would cost the insured to repair, rebuild, or replace the item lost or injured less a fair and reasonable deduction for physical depreciation based on its condition at the time of the loss.”

While seemingly fair, this leaves pre-loss condition in a tough situation. Many adjusters have found themselves between a rock and a hard place due to this law. Often, it can be difficult to determine what an item actually is – much less its exact condition at the time of the loss.


Unique or Obsolete

Furthering confusing things, an adjuster has to work with obsolete and unique items. Not even item loss will be easily purchased on Amazon.com. No, there will be a variety of items that hold a unique value for the owner. Many of these items will be tough to find pricing for.

This Honus Wagner baseball card sold for 2.1 Million in 2013

This Honus Wagner baseball card sold for 2.1 Million in 2013

As an adjuster, understanding that one man’s trash could equate to another’s treasure is paramount when dealing with these unique cases. When dealing with these cases, communication is key. The adjuster must work to understand the insured and what he or she places value on. You need to understand the insured and the item before placing a value on it.

When dealing with these items, begin by understanding what exactly the item is, how it was used, and if the insured still values it. Many times, an adjuster will need to dig deep and do some research before giving value to a unique or obsolete item.

If an adjuster is struggling to price an item properly, try:

  • Consulting experts in the field. Look for a certified consultant who can help you give value to a unique, obsolete, or high-priced item. Always verify these individuals’ credentials.
  • Use the Internet. While Internet pricing isn’t the most accurate, you’ll often be able to gather a working knowledge of the item and its value by going online.

Overall, the best way to determine value for an obsolete or unique item is to find a similar item already on the market. Finding a similar kind and like item can ensure fair pricing and valuation for both parties.


Understanding Antiques

Antique items open a whole other bag of worms for adjusters. Not every item that is older is considered a valuable antique. Most items are required to be a certain age and origin to qualify. A minimum of 100 years old is required for an item to be “antique” from an insurance perspective. Adjusters should handle antique items in a similar manner to obsolete and unique items.


Actual Cash Value Vs. Replacement Cost Value

Overall, understanding the actual cash value versus the replacement cost value isn’t that complex. Most homeowners will benefit from RCV more than ACV when an adjuster is looking into their claim. How a state handles these cases and individual policies will go a long way in determining how the claim is calculated.

For more information about Actual Cash Value (ACV) vs. Replacement Cast Value (RCV) contact Skyline Risk Management, Inc. at (718) 267-6600

Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

The New York Supreme Court, Appellate Division, First Department decided that additional insured endorsement only provided additional insured coverage to an entity in direct contractual privity with the named insured. The decision reinforces the New York law, which controls policy language entitlement to added insured coverage.


Why the Confirmation?

The New York Supreme Court was forced to confirm this law due to a recent case. Brought to heed on Sept. 15, 2016, the case involved the Dormitory Authority of New York (DASNY), Gilbane Building Co. /TDX Construction Corp (a joint venture, or JV)., and Sampson Construction Company.

The contract between DASNY and the JV stated that all prime contractors retained by DASNY were to name the construction manager as an additional insured under the liability policies. This was a requirement.

Next, DASNY contracted with Sampson to retain its services as a prime contractor in all foundation and excavation labor. In this contract, Sampson agreed to name the construction manager as an additional insured on its commercial general liability policy. The company then purchases a commercial general liability insurance plan from Liberty Insurance.

The policy Sampson procured from Liberty contained the following information about additional insured endorsements:

WHO IS AN INSURED: (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract, but only with respect to liability arising out of your operations or premises owned by or rented to you.

Moving forward – the work Sampson did on the job site allegedly created property damage to the building adjacent. Thus, DASNY filed suit against Sampson and the architect. Then the architect bought a suit against the JV, too. The JV then sought coverage under the Liberty policy that Sampson procured for the DASNY contract as additional insured.

Liberty denied coverage. So the defendants opened a declaratory judgment action against Liberty. Then Liberty made a play for a summary judgment, claiming that additional summary judgment would require some direct contractual privity with the named insured, Sampson.

The court then denied Liberty’s motion on the basis that the policy only required a written contract in which Sampson is a party. This requirement was satisfied when DASNY and Sampson entered a contract. However, this was overturned on appeal based on the additional insured endorsement.

While the Sampson and DASNY contract was evidence that Sampson agreed to provide coverage, the court ruled that this has no impact on the coverage Liberty agreed to provide them. This opened the door for the JV to pursue Sampson on a breach of contract clause, as a third-party beneficiary.


Nothing Has Changed

The concept that New York courts read closely regarding additional insured endorsements determined whether privity was required is nothing new. The Gilbane Court relied on numerous prior decisions with similar language, including:

AB Green Gansevoort, LLC v. Peter Scalamandre & Sons, Inc., 102 A.D.3d 425, 961 N.Y.S.2d 3 (1st Dep’t 2013) (requiring contractual privity where additional insured endorsement stated that “an organization is added as an additional insured ‘when you and such organization have agreed in writing in a contract or agreement that such organization be added as an additional insured on your policy.’”); Linarello v. City Univ. of New York, 6 A.D.3d 192, 774 N.Y.S.2d 517 (1st Dep’t 2004) (same). See also Zoological Soc. of Buffalo, Inc. v. Carvedrock, LLC, No. 10-CV-35-A, 2014 WL 3748545 (W.D.N.Y. July 29, 2014) (requiring contractual privity where additional insured endorsement afforded coverage to “[a]ny person or organization with whom you have agreed, in a written contract, that such person or organization should be added as an insured on your policy, provided such written contract is fully executed prior to the ‘occurrence’ in which coverage is sought under this policy.”)

The JV and courts attempted to distinguish the language in each policy, but the Gilbane Court clearly stated that privity between named insured and additional insured is required. 

For more information about Additional Insured Coverage, contact Skyline Risk Management, Inc. at (718) 267-6600

Small Companies are More Vulnerable to Employee Theft

Small Companies are More Vulnerable to Employee Theft


One would think that it'd be easier to steal from larger companies. These companies have so many employees and items to keep track of that it should be easy to get away with a lot. However, studies have shown that large companies rarely have to deal with embezzlement by employees.

Surprisingly studies have shown that over 80% of all employee embezzlement cases occur in companies with less than 150 employees. 


Why Are Small Companies At Risk?

So why do these small companies have to deal with such potential for employees stealing from them? There're a few reasons. First, smaller organizations tend to be close-knit. This means employers often give more trust and freedom to employees. Employees in small companies tend to have greater empowerment than those of large firms.

As such, these employees are given more of a free reign, which leads to the ability to steal without detection. Even more surprising, most embezzlement happens from employees who have tenure and title within the organization. These individuals often end up taking the largest amounts from the company.


Positions That Steal A Lot

Fraud and embezzlement vary from industry to industry. One fact tends to hold true no matter the business: managers were found to steal more than any other employee group.

Common positions that stole from companies include:

  • Controller
  • Bookkeeper
  • Manager
  • Teller
  • Accounting
  • CFO/CEO/COO
  • Director
  • President
  • Treasurer
  • Employee

Why Do Employees Steal?

There's no one reason why employees end up stealing from a company. Some employees end up struggling with enormous financial pressures, and find their only way to get more money is to take from the enterprise.

Others steal from the company out of spite. Many employees who commit theft do so because they feel slighted by the corporation. They could feel their underpaid, or they could not like how they're being treated in the office.

Some employees take money from the company as a "loan" in the beginning. They have the intentions to return what they stole, but it never happens. As the employee doesn't get caught, so they end up in a nasty cycle of stealing without remorse.


The Worse Industry For Employee Embezzlement

Over 17% of all employee embezzlement cases were found in the financial services industry. The financial service industry is ripe with schemes because of the opportunity. Many employees in the industry have access to bank deposits, the ability to forge checks, an opportunity to fraudulently use credit cards, chances to fake invoices, and much more.   


Protect Your Company

It's imperative you protect your business. The employees closest to you could be robbing you blind. You need more than your own two eyes. You need a system of checks and balances in place to ensure your employees are not embezzling. You need to perform background checks on any and all employees who handle money within your organization. Teaching all individuals within your company to detect fraud is another great place to start. 

If you feel that your business if vulnerable to employee theft contact Skyline Risk Management, Inc. at (718) 267-6600 to voice your concerns. 


The Living Benefits of Cash Value Life Insurance

The Living Benefits of Cash Value Life Insurance


We hear it all the time "never buy cash value life insurance, it's just not worth the money." Some consultants insist that creating an emergency fund that is supported by cheap term life insurance makes much better financial sense.

What they neglect to point out, however, is that when you are starting a family and creating debt that results from mortgages and car loans, it can take substantial time to put aside a large emergency fund. What happens if you need low-cost loans in the meantime? And what happens if you, the primary earner in the household, die unexpectedly? This is when cash value life insurance makes a lot of financial sense.


Universal Life Insurance

By using a Universal Life (UL) product, the consumer can save for a rainy day or supplement their retirement while also financially protecting their family in the event of death. Universal Life insurance is an insurance hybrid that uses Term insurance with a cash account attached to it.

The UL was originally designed as a more affordable way to purchase permanent insurance and have the flexibility to change as the policyholder's needs might change during their lifetime. The policyholder pays more than the cost of insurance during the early years of the policy, and the overage is directed to a cash account that earns tax-deferred interest. In the later years, when the cost of insurance may be more than the periodic premium, the premium shortfall is made up using the funds in the cash account thus, keeping the policy in force for the life of the insured.


Index or Variable Universal Life

Not long after the UL hit the market with huge success, the insurance industry went to work at designing additional products that would appeal to investors as well as life insurance customers. The products created were are very similar to Universal Life, but the funds in the cash account can now be directed to other investment vehicles such as mutual funds or traditional investments such as the S&P 500 and NASDAQ.

The Index and Variable UL products provide a more aggressive growth to the cash account and create a fund suitable to supplement retirement income. The greatest advantage with the UL products is the manner in which you can withdraw funds on a tax-free basis:

  • Policy Withdrawal (Partial Surrender) - Once your policy value achieves an amount that will accommodate withdrawals, you can make a withdrawal of the basis funds (amount premium paid in) on a tax-free basis. Your death benefit will be reduced by the amount of your withdrawal.
  • Periodic Policy Loans - You are entitled to borrow against the cash value of your policy on a tax-free basis with no repayment commitment or credit check. As long as your policy remains in force until the death benefit is paid out, there will be no tax liability for the periodic loans you take. You can pay the interest out-of-pocket or opt to have it withdrawn from the cash account as well. It's very important to stay up to date with your policy value statements to make certain your policy doesn't cancel for insufficient premium to keep it in force.

It's important to keep in mind that while you are using your permanent life insurance as a means to earn interest and withdraw the cash tax-free, you also have that all-important death benefit that will provide financial protection for your family in the event of your death.

For more information about cash value life insurance and the benefits it can provide, contact an insurance professional at Skyline Risk Management  (718) 267-6600 for a free and confidential consultation.


Reduce Your Mod Rate by Combining Entities?

Reduce Your Mod Rate by Combining Entities?

For companies suffering from increasing mod rates, and with insurance premiums on the rise, it is no shocker that your bottom line is being effected. Sometimes a solid alternative is to combine entities to ease these costs. 

How Can it Help?

As a business owner, if you have several organizations under the same management and control, it may help if the entities are combined for the purpose of experience modification calculations. It used to be that if you created a new corporation and then transferred the ownership to it, you could effectively reduce your worker's comp mod factor back to 1.00.

Then the beloved NCCI stepped in and killed that strategy and implemented a new three point approach for ownership changes.

The NCCI 3 Point Rule

Simply put, when there is an ownership change in a company, the experience rating of the former company is acquired by the new surviving company or owner(s).The only way this experience rating does not transfer to the new organization is if all three of the following conditions are met:

1.      There must be a material change in ownership. If there is any ownership continuation, the interest must have been less than one third ownership before the change or less than one half ownership after the change.

2.      There must be a change in operations that is enough to result in a reclassification of the governing class code.

3.      There must be a modification in the process and hazard of the operation.

The good news is if all three conditions are met, the experience of the previous organization(s) is excluded from the new organization. In reality, this is unlikely to be the case because it would be like an RV repair shop being sold and reopened as an accounting firm. If the new owner does not have an established mod factor, the mod of the new entity becomes 1.00 when the experience is excluded because the three points listed above have been met. If not, a mod will be calculated from the combined experience of the old entity and the new one.

Business owners need to understand that experience and loss control is a function of an entity's ownership and process. The new rules negate the past attempts by insureds to get around the rating plan. For example, if an insured who has earned a high mod in one state because of poor experience, that same insured cannot open a "dummy" corporation in another state and then transfer ownership to lower the mod on the remaining corporation and then give the new on a 1.00.

For more information about reducing your modification rate, contact an insurance professional at Skyline Risk Management, Inc. (718) 267-6600 to help address your concerns. 

Understanding Risk Management

Understanding Risk Management

For any organization to appropriately manage the risks involved with being in business, the management has to be more than simply renewing insurance policies. Yes, your insurance is always a key part of any risk management strategy, but there is more than one piece to the puzzle.

Identification

To properly approach the task of risk management, the first thing that has to happen is the identification of any existing risks that can jeopardize your business financially.  Although simple to say, this task can be difficult. After all, risk management involves predicting the future based on past experience and expertise. A risk manager must look to their key employees and management staff for insights and look externally to professionals you trust and other specialists.

Risk Appetite

Before the risk management strategy begins, the organization will need to determine how much risk you're willing to afford and accept, or your "risk appetite." After which you'll need to identify the measures the organization currently has in place and what is still needed in order to help manage the risk. Once the risks have been identified and prioritized, the organization will then determine how they should be managed. There are three options to consider:

1.      Avoidance - Avoidance is when the organization decides not to embark on a certain activity because the risks exceed the expected benefits

2.      Acceptance  - Acceptance happens when an informed decision is made to accept a potential risk because the benefit is significantly greater than the risks.

3.      Transfer  - This takes place when the organization elects to transfer the risk to a third party insurance company or by contract with a non-insurance organization, however, when transfer is elected, it is typically not 100% because of the deductibles involved

When risks are transferred to an insurance company, the deductibles act as a motivator because the insured will typically attempt to reduce the risk because of their responsibility to accept a portion of it. For example, if your business that is acting as a General Contractor, requires all subcontractors to obtain and pay for their own insurance, the subcontractors are motivated to reduce risks that could result in a claim where they will have to pay deductibles out-of-pocket.

In cases where a General Contractor is purchasing Wrap-Up insurance that covers the General Contractor and its subcontractors, the limits and deductibles will be significantly higher which increases the exposure for the General Contractor. As the general contractor, your deductible responsibility would could be increased to $50,000 or $100,000. Knowing this, you could build this risk into your project bid or transfer it to your insurer who could pay the difference between your chosen deductible and the higher deductible under Wrap-Up policy.

Every industry contains unique risks and exposures that must be properly managed to avoid the inherent financial consequences that can result. It's important for the risk manager to be able to call on experts in the industry to define and ultimately mitigate them. After implementing a comprehensive quality assurance and safety practices program that are targeted to minimize the identified exposures, the risk manager can make an informed decision to avoid, accept, or transfer the risks that remain.

For professional advice about your organization's exposures, contact Skyline Risk Management, Inc. (718) 267-6600 for help with identifying your exposures and how to mitigate them in the best possible manner.

Why Break the Bank When You Can Borrow from Your Life Insurance Policy?

Why Break the Bank When You Can Borrow from Your Life Insurance Policy?

For most people, financial emergencies happen. Your water heater blows up; your transmission dies, or your roof leaks when it rains. We all know that we're supposed to have that "emergency fund" in our savings account, but sometimes everything comes at us at once.

Then you remember that insurance guy was telling you that you can borrow against your life insurance. Oh yeah! Yes, you can borrow against your life insurance because it's YOUR money.

There are, however, a few things to take into consideration.

Your Type of Policy

If you've been paying into your life insurance for at least a few years, the chances are good that there is some cash available to you, depending on the type of policy you purchased.

  • Whole Life - If you purchased a whole life policy then you will definitely have some cash available if you've owned the policy for three or more years. The key word here is "own". You must be the owner of the policy to access the cash value. If your Mom owns it and you are the insured, you'll have to get her to do it for you.
  • Universal Life (UL) - With UL or a similar version of UL, the rules are pretty much the same. If you are making minimum payments into the policy, it may take five or more years before your cash builds up to anything worth borrowing.
  • Term - If you opted for the cheap stuff, you're out of luck. Term insurance does not build cash value. Sorry.

The Next Step

Visit or call a life insurance agent and ask what your available cash value is. It's okay to let them know you want to take out a loan; it's your money, and they'll give you the advice you'll need. Your agent can check your cash value balance and also answer any questions you have about interest, repaying the loan, and how it might affect your policy. Typically, you'll be required to sign an authorization form for the insurance carrier, and your check will arrive in about seven to ten days.

The process for borrowing against your life insurance is pretty simple, as it should be. Your agent told you about this benefit, and now you're just exercising your right to borrow. There are, however, some pros and cons when borrowing against your life insurance.

Pros

·         No credit check. You're borrowing your money. No credit needed!

·         Favorable Interest - In most cases the interest on a life insurance loan is lower than the interest charged for a personal loan or a cash advance against your credit card.

·         Payback on Your Terms - Since you are lending money to yourself, you decide when and how you'll repay it, if you repay it at all. Typically, the insurance carrier will add unpaid interest to the loan balance each year. This will be shown on your annual report.

·         Your Choice Where You Spend - There are no limitations on where you spend the borrowed funds. You can buy a new water heater for your home or go to Vegas. It's completely up to you.

Cons

·         The death benefit of your life insurance will be reduced by the amount of any outstanding loans until the loan and interest are repaid.

·         If you elect not to pay the interest when due, the amount will be added to the balance of your outstanding loan.

·         For policies that pay dividends, your dividend amount will be reduced because of the outstanding balance of your loan.

·         Policy Lapse - If your policy is a Universal Life Policy, the interest that is credited to your account is based on the cash value of the policy. The lower the cash value in your policy, the lower amount of interest will be credited. Since Universal Life Policies rely on interest to keep them in-force in the later years, it is possible that your policy may lapse if the interest credits are significantly reduced.

When you purchased your life insurance, your agent probably told you about cash value and how you can access it during your lifetime. If that time has come, contact Skyline Risk Management, Inc. by calling (718) 267-6600 to get the information you need to make an informed decision.