On Insurance Claims and Bad Faith Law Blog yesterday, I shared some thoughts about the "fortuitous" requirement and its mother, the "known loss doctrine." I wondered what some effects might be of applying those claim-denial concepts to insurance underwriting, specifically, to the calculation of retroactive premiums including below-market wages in the calculation.
I would like to extend the discussion on this Labor Day to include any claim or premium rate based on below-market wages. Worker's compensation insurance premiums, for example. Or business interruption claims for lost income over and above basic expenses such as below-market payroll at an insured restaurant.
Punitive damages are often and generally uninsurable, at least when clearly assessed on the ground of the policyholder's proven bad conduct. Where punitive damages are uninsurable it is because public policy forbids insuring them, forbids providing bad actors with (insurance) money for their bad conduct. Suppose that paying below-market wages in a given industry located in a particular place rises or falls to the same level of public policy against their insurability. Suppose the public policy is based on the same notion that forbids paying bad actors with insurance money to do bad things, in this case, paying below-market wages.
It seems that then there will be a good argument against insurability for at least a part of the restaurant's business interruption claim in our hypothetical. To the extent that the business interruption carrier can prove that the basis of the restaurant's claim should rest on market wages, the restaurant's business interruption claim would begin with a higher basis or expense factor, before awarding the difference between expenses and lost profits when calculating the available amount of business interruption coverage. The difference between the policyholder's below-market payroll in this example, and what the policyholder would have paid if the restaurant had paid wages at the prevailing market rate, would represent an amount that is uninsurable and so would rightly be deducted from the lost profits before calculating the claimed lost income.
Thinking along these lines requires thinking outside the box of rules which worked pretty well until they didn't. This seems to be true of jobs and wages information generally. A lower unemployment rate coupled with an increase in the number of jobs added to the 'labor market' is treated as good news signaling a recovering economy. See Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015). The lower unemployment rate, it is hardly mentioned, is skewed by the large number of people who have dropped out of the 'labor market' because they are no longer looking for work after looking for years, and so they are no longer counted as being in the market to provide labor. They are just not counted in the official unemployment rate, thus skewing the percentage of unemployed people lower than it is in reality.
It goes without mention in the popular press reports, but it is possible if not likely that more jobs on the market at lower wages does not represent the number of people who have found jobs. People may be working more than one job in even greater numbers than were known or suspected to be the case, because prevailing average wages are so low for the newly offered jobs. To say again, this is never mentioned, not even suggested, but it fits the evidence.
Further, the fact that wages have actually decreased in relative terms is treated not as a bad thing, but as a good thing because average "hourly earnings rose a healthy 0.3 percent." Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015). Apparently this is to be treated as a good thing because a 0.3 percent rise in average hourly earnings was "unexpected" by whoever is supposed to expect such things. For workers paid by the hour, a raise of 3/10 of one percent seems like many things, but "healthy" is probably not one of them. SeeNelson D. Schwartz, "Low-Income Workers See Biggest Drop in Paychecks" (New York Times Online, posted on Tuesday, September 2, 2015).
To say again, thinking along the lines explored here requires thinking outside the box of rules which worked once upon a time but not now. The previous rules and models do not work now because they are not based on the reality of the present. New rules and different ways of thinking which reflect the reality of the present day are required. The old rules and previous ways of thinking have brought us to where we are today, thereby proving if more proof was required, that they have stopped working.
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