By Bob Mionske
Legally Speaking – with Bob Mionske: Attack of the killer garage door – Part III
Published Feb. 9, 2006 on Velonews
Dear Readers;
Recently, S.S., an attorney in Tennessee, drove into his garage whilehis bike was still attached to his roof rack, and his insurance companyrefused to pay his claim (see “Is it my garage or my car that’s at fault?“). I received several interesting responses to that column from readers, which I shared in last week’s column (see“Garage v. Roof Rack, Part II”). That column prompted even more comments and suggestions from readers, as well as additional insights about the insurance industry from industry “insiders,” so this week, we’ll revisit the case of the Garage v. Roof Rack et. al.
Been There, Done That
They say there’s nothing new under the sun, and from your responses, it’s apparent that S.S. wasn’t the first cyclist to file a claim:
• D.H. in California writes “I started to drive intomy garage two weeks ago with my Trek 5900 on the roof rack, and stoppedwhen I heard the noise. The frame was toast! I tried to collect from myhome owners insurance, but the agent said my loss was not covered. LuckilyTrek has a crash replacement plan.”
• B.J. in Utah writes “I carported my bike a few years backand my home owners policy covered my bicycle and my auto covered my roofrepair. Neither covered my rack. I spoke with an agent in another and sheprocessed the claim in an expeditious manner. I had a very good experienceand never want to live through it again.”
• J.R. writes “I must have a good insurance company.I left my bike’s front wheel at a trail head one day; when I went backfor it an hour later, it was gone. My personal property insurancepaid me the new-wheel replacement value, instantly, as the result of atwo-minute phone call, even though the loss was caused, not by a car orgarage, but by me. They didn’t even laugh at me. They did,however, raise my deductible.”
• And in the “persistence pays” department, A.O. tells us “When I wrecked my first real racing bike, I thought I was just really unlucky to be out of my $2,800 bike. I initially called my agent’s office and spoke to his assistant and was told that the claim would not be covered. I was very disappointed, but figured that was the case and I left it at that. About 10 months later, one of my close friends, who is an adjuster with a major home and auto insurer, called me and told me that he just went through claims training and discovered that a claim like mine would in fact be covered. So I listened to his reasoning and it made sense. However,when I called my agent’s office again, and again spoke to the representative,they said it wasn’t going to be claimed. I pushed them and finally told them just to file the claim and let the adjuster determine the compensability of the claim. When the adjuster called and listened to my explanation,he said, ‘It looks pretty clear to me that it is covered, I just need to inspect the bike to verify the damage and do some research on the cost of a replacement, etc.’ So after some wrestling with my local office and finally just reporting the claim, I ended up getting a sizeable check that was based off of the present day equivalent to the Trek 5200, the Madone5.2. Unfortunately, I didn’t go buy the Madone 5.2, instead I bought part of an engagement ring. And now I don’t ride my bike anymore, but that is another story. (Of course, the not riding part isn’t exactly true, but the ride time has curiously gone down since getting engaged.)”
What Was He Thinking?
Bought a ring instead of a bike? What was he thinking? Which, coincidentally,is what several readers asked about SS’s original letter:
• R.M. in Arizona writes “Are you kidding?!?I can’t believe all the replies to this. It’s not the garage or thecar’s fault. IT’S YOURS MORON!!!! STOP MAKING STUPID INSURANCE CLAIMS AND DRIVING UP MY RATES!!! Anyway, I might change my tune when I do this, but probably not.”• S.L. writes “The real purpose of insurance is to protectyou from a loss you can’t withstand — ‘pain and suffering’ to the tuneof $1M you cause another in an accident or to repair/replace their $50,000vehicle or to rebuild your $500,000 house that burned down. People frequentlysee insurance as a means to be reimbursed for anything and everything (it’swhy so many people pay $10 for an extended warranty — which is just aninsurance policy — on a $50 appliance). You get what you pay for, so additionalcoverage costs you additional premiums. My bike is worth less than $1000,which is a loss I could withstand (though I’d hate to!). If I ever geta $10,000 bike, I’ll have to think seriously about paying for additionalcoverage — or maybe just get rid of my roof rack!”
• K.K. writes “Bottom line is, if you bike is worth less than$2k, then it is probably best not to make a claim on it for any reason!.I have a friend who’s bike’s were stolen twice, and he claimed both times.Now, he can’t even buy insurance! So, it is going to cost him morein the long run than if he replaced them himself.”
That’s good advice. Due to natural and man-made disasters, along with apoor investment return in the market, insurance companies have recentlybegun attempting to make underwriting more profitable. As a result, theyhave been increasingly willing to eliminate unprofitable policies. Insurersuse two databases, similar to a credit report, that list a customer’s claimhistory. One of the databases is the Comprehensive Loss Underwriting Exchange(CLUE); the other is the Automated Property Loss Underwriting System (A-PLUS).In addition to listing how many claims a customer has made, these databasesalso list how many times a customer has even inquired about making a claim;questions about coverage are not tracked, however. As with credit reports,consumers are entitled to a free copy of their report every twelve months;you can request a copy of your CLUE report at www.choicetrust.com. If yourinsurer uses A-PLUS, you can receive a copy through your insurer. So whenshould you make a claim? As S.L. notes above, consider making a claim forthose losses you can’t withstand—generally, that would be for losses exceeding$5,000, according to some experts.
• R.W writes “I’d like to offer another piece ofadvice. Only get insurance to compensate you for events you could not reasonably assimilate financially. If you have only one bike, and it’s what you use to get to work, and you can’t afford to replace it immediately, then you probably have more need of insurance. If you have several bikes each worth several thousand dollars, chances are you could live without one of them for an extended length of time. Instead of giving monthly premiums to an insurance company, put the same amount in a savings account. When you get to 1X cost of bike, you’re 100% covered, with no deductible. When you get to 2X cost of bike, withdraw enough to buy another bike.”
• Finally, K.B. in New Jersey asks “Is the bar exam in Tennessee really easy to pass?”
The Insurance Industry: More Insider Perspectives
Ever since S.S. asked about his claim for his Wilier, it’s been raininginsurance professionals here at Legally Speaking. In response to the insider perspectives in the last column, even more industry professionals offeredtheir perspectives. Some agreed with the insider perspectives, some disagreed:
• “I work in the Insurance Industry as well as many others that contributed to the story and I applaud the accuracy and the detail that you used in covering the topic.”
• “Good article. Simply, you need to purchase a homeownersor renters policy that offers replacement cost coverage on scheduled itemsand opens the perils up to ‘all risk.’ Even then, insurance companies putin tricky language. Don’t modify the auto policy because you can’t buythe perils back that you’ll need. Best bit of advice? Find yourself a good insurance agent and tell them what you want. A lot of times the agent can negotiate with the underwriter to make sure the coverage is there that is wanted. The rate is cheap. The company we use will even cover the bike if it’s damaged while racing. Very unusual because racing is almost always an excluded peril even on ‘all risk’ policies. What a quagmire!”
• “Another useful piece of advice for your readers is that not all insurance policies cover the same things. There are specified perils policiesthat only cover damage from certain types of perils (fire, explosion, lightning,etc.) These policies are generally cheaper than ‘all-risks’ policiesthat cover all perils except those which are specifically excluded (war, nuclear, etc.). Floater policies are sold the same way so you should makesure what insurance you have. You may have intended to cover your bike from damage inflicted by your garage but it may not be a ‘specified’ peril.”
• “Underlying all of this is a very specific legal document calledthe policy. If you can show where the policy you bought is required to pay a claim then chances are it will be paid. If the policy does not cover a specific peril then there is no payment. The fact that you pay premiums for years and never make a claim does not change the legal document.”
• “I work in the litigation department for an insurance company in Texas. I have also handled claims before they became lawsuits, both liabilty and first-party property claims. I found some of the comments by ‘insurance industry insider’ in your recent column laughable. Perhaps the company I work for is the exception rather than the rule; however insurance companies, contrary to popular belief, are most definitely in the business of PAYING claims. If claims frequency rises, driving profits down, then premiums are raised; and this doesn’t accompany a communication, either explicit or implicit, to start denying claims. Claims payments and payroll are the two biggest expense items for any insurance company (if anything, payroll expenses are sacrificed when profits are slim, not claims payments).The whole concept of insurance is to take in enough money in premiums so that the company can afford to pay COVERED claims and still make a profit. I understand that insurance policies may not be exciting reading, but I have little sympathy for the person who fails to read their policy when they purchase it and then complains that something is not covered after the fact. Additionally, neither my performance, nor the performance of anyone I have ever met in the insurance industry, is graded on the amount paid on claims. This may be done at some disreputable companies, but this, to me, is an unethical practice. When I was hired, it was drilled into me that courts interpret ambiguous terms in insurance contracts in favor of the insureds and that adjusters have a duty to look for coverage, not to look for a way to deny the claim.”
• “You quote a number of ‘insiders’, several of whom made reasonable comments, but the following two I find objectionable. Indeed,I doubt the credentials of the writers. First, you have the ‘insider’ who said, ‘Insurance companies are in the business of selling insurance and making a profit. They are not in the business of paying claims.’ That’s a common cheap shot, but it’s pure baloney. Insurance companies are in the risk business. We evaluate various risks using established actuarial methods and facts. We calculate as best as we can how likely it is that certain events will happen within a population, applying the ‘law of large numbers.’ We figure out what the average loss will be for that event. We nclude how much we must collect from our policyholders to cover the likely losses, make a profit and still be competitive against other companies in the marketplace. When the claims come in we have enough money to pay our overhead, pay the claims and still have some profits left over. I take a great deal of pride in the fact that my company pays out claims. That’s what I tell our agents – ‘We are in the business of paying claims. It’s the way we truly provide peace of mind to our policyholders.’ If we were not paying claims, we would go out of business. What the layperson does not always want to understand is that insurance companies are in the business of paying claims for which the individual correctly and accurately completed the application and which the policy covers. That’s a very simple basic premise. Yet, I see many policyholders who tell us falsehoods about their risks and then expect us to ignore them. And I know of many instances where a policyholder buys the policy from their neighbor the insurance agent, half listening to the explanations and not asking any questions, gets the policy, throws it in the drawer without ever reading it and then, when an event occurs, pulls it out and says ‘Oh, my gosh, I’m not covered. I’m surprised! No, I was misled!’ If you wish to have something on the top of your vehicle covered, whether it be a bicycle, a ski rack with skis and poles, a luggage carrier filled with Gucci luggage, or whatever- buy a policy that covers those items and the likely events. End of whining. Start of peace of mind.The second comment that deserves correction is from the ‘insider’who alleges that once a company sets aside reserves that those funds are not available for it to make a profit – more baloney. Reserves are set aside in the aggregate, not individually by claim. Companies with trillions of dollars in coverage and billions in reserves do not set the money aside when a claim is filed and stop making interest on the funds. Reserves are set aside in increments over time beginning with the first premium payment according to the same actuarial principles that establish the rates. They are invested as dictated by state statutes and prudent investment guidelines. Asset liability matching principles are used to invest the reserves according to the likelihood that a portion of the total reserves will be needed in ten days, three months, six months, a year or not for many years. The interest on reserves invested by an insurance company is a key factor in its income and cash flow. When the claim is filed there is a ledger entry made to earmark the possibility of paying out a portion of the reserves. The investment professionals make sure that there is always sufficient liquidity to pay the likely aggregate amount of claims, and they make adjustments as needed to see to it that the cash is there. But the reserves do not suddenly stop making money and therefore there is no pressure not to pay. Bottom line – I’m an insider – the General Counsel for an insurance company. Also the President and Chief Operating Officer. And I spent 10 years on the outside as a trial lawyer in civil contract litigation. When I buy a policy – life, casualty or health – I read it. Is it complicated?Yes. Is there help available if I don’t understand something? Yes. Do I have an obligation to understand what it is that I bought? Yes. I also read the warranty on the new Trek that I bought, and I read my cable television contract, and the contract with my credit card, and the mortgage on my house, and the loan for my daughter’s college education. That’s the real bottom line on your article. Nobody wants to be responsible for their own actions – including Tennessee lawyers stupid enough to drive their very expensive bicycles into their garage after failing to take the time to read their insurance policies.”
Don’t Try this At Home, Kids
Wait a minute…Did he just say “I see many policyholders who tell us falsehoods about their risks and then expect us to ignore them?” But what about falsehoods on claims? Do you think somebody like this guy might raise some insurance insider eyebrows?
“Thanks for the informative article about driving your bike atop the car into your garage. I too have suffered for the same dumb mistake. But the one thing I didn’t do is call my insurance company right away. Just as you state in your article, too many times you read how insurance companies will protect themselves and deny a claim based on what we may call loopholes. I understand the game so I’ll play along. What I did was to find out what kind of accident would cover my beloved bike and that’s what I tell my insurance company. No, I didn’t drive my bike into the garage. After a long ride, I propped the bike up against the rear of my station wagon and forgot it was there. Later I jumped in the car and proceeded to back over the bike. Yeah, that’s what I did. Now I don’t recommend committing fraud against your insurance company, however, my belief, as is so many others, is it’s the same type of accident. ACCIDENT I say. So I don’t have any bad feelings of how I handled it.”
According to the Insurance Information Institute, fraud cost insurers $300 billion dollars in 2004 alone. As you might imagine, insurance fraud results in higher rates for all policyholders—remember the guy who wrote to ask people to stop driving up his rates? But how can claiming an accident under your policy drive up everybody’s rates? If you’re paying premiums anyway, shouldn’t you be able to collect when you have a claim? The answer is yes, you’re paying premiums, but paying premiums isn’t enough—you need to be paying the premiums necessary to cover certain types of losses. If a cyclist ‘doctors the facts’ to recover on a claim that isn’t covered by the premiums paid, the loss—the cumulative loss, really, of all the fraudulent claims—is borne by all the policyholders through higher premiums.Okay, but is that the only penalty—higher premiums for everybody else? No. Insurance fraud is a crime in 49 states, and 40 states have established insurance fraud bureaus to combat the crime, with cases based on tips or insurance company investigations brought to trial for prosecution. Additionally, there are several federal statutes that may be triggered by insurance fraud. The insurance industry is serious about combating insurance fraud, so don’t try this at home, kids.
Even More Proactive Tips To Protect Your Bike
Okay, so having the right policy is good, having the right insurance company is good, insurance fraud is bad…Is there anything else you can do to protect your bike? Yes, there is. Remember the preventative advice one reader offered? Well, several of you wrote to offer more suggestions:
• D.H. in California: Now I throw the garage door remote on the back seat of my car [other readers suggested the back floor, glove box, or trunk], and plan to put a ‘GOT BIKE?’ sign on the garage door as a reminder!• P.J.: “An even simpler solution is to leave the garage door opener in the garage when you put the bike on the car roof. That forces you to stop in the driveway and get out before you can pull the car in.”
• K.S. in Minnesota: “I would like to offer my little bit of knowledge which I have gained since running my bike into the garage roof a couple years back. I take a large orange traffic cone and place it in the middle of the garage entrance before I leave. This way I can’t physically enter with out stopping and exiting my car to move the cone. Knock on carbon, but I have not put my bike into the roof once since implementing this system. It has even got to the point where my daughter Stephanie asks ‘Daddy can I put the cone out?’ before we leave.”
• T.R.: “When I put the bike in the rack at the outset, I set up an obstacle in the garage – usually a step ladder – that prevents me from entering the garage later without stopping first, removing the bike from the roof rack and removing the obstacle from my spot in the garage.”
• C.S.: “When my bike is not on my rack, I strap a beer can (Guinness) in the rear wheel tray. When I back out of the garage to install the bike, the beer can has to be removed. I then sit this can in the space where my car was. When I get home & the garage goes up, I see the Guinness can & am reminded of the bike. This system has worked beautifully, saving many incidents since I came up with it after driving my roof rack-mounted Paramount into the garage, ruining it and my wife’s car.”
So C.S. is coming back to a warm Guinness? Do you suppose he’s British, and misses his Lucas refrigerator?
• F. K. writes “These insurance stories all seem like conflictsbetween the HO and auto policies. What about hitch racks? I think the laws are clearer when the accident is between two vehicles, which is one reason I use a hitch rack. I was rear-ended in 2005 while parked in a parking lot with my Klein locked onto the hitch rack. Witnesses heard and saw the event while I was shopping and helped security with the license plate of the hit-and-run offender. Officers visited the culprit’s home and brought her back to the scene. The culprit admitted ‘I heard a noise but didn’t see anything in my rear-view mirror so I kept going.’ Ultimately, after professional inspection, there was no damage to bike,car, or rack. The bike and rack have enough give to be an early warning system that spared my car from the SUV. I didn’t have to test the lady’s insurance, but there is much less doubt regarding coverage in a rear-end collision.”
• J.K.: “Having ridden bikes for longer than I care to admit, one solution is to put the bike into the trunk or rear compartment of the car. A van is nice, and I’ve never had a problem putting it in the bed of my pick up.”
• E.C. in California: “My solution to not driving in the garage with my bike on was two-fold. First, I make a little hanger sign for my mirror that said ‘BIKE ON ROOF!’ and put it on religiously whenever I put my bike on the rack. The second thing I did every time I rode with my bike on the rack was to take my garage door opener and put in on the floor in the back seat where I couldn’t reach it. Even with that, I would still surprise myself (‘Oh, I have my bike today!’) when I got out to look for the remote in my back seat.”
• S.S., a Tennessee attorney who wrote last time: “Thanks for the follow up article. I’m glad to see I’m not alone. I have now learned to put the garage door opener in the glove box any time a bike is on top of the car. Of course, that doesn’t help at the drive through window . . .”
The Bottom Line
The bottom line in protecting your bicycle is you need to choose your insurance company carefully, you need to choose your policy carefully, you need to read and understand your policy, and never, never drive into your garage with your unobtanium-framed racing bike attached to your roof rack.
Good luck,
Bob
(Research and drafting provided by Rick Bernardi-law student-Lewis and Clark)
This article, Attack of the Killer Garage Door- Part III, was originally published on Velonews on February 9, 2006.
