Beating a Dead Horse

Well, if you read my blog about the Princess Gigi decision (and I hope you read the decision), then you probably got my point about how insurance companies are perhaps "predisposed" to fight a salvage claims. There is a misconception on the part of some members of our industry who continue to believe that the reason insurance companies will balk at paying a salvage claim, or even a large wreck removal invoice, is because a few bad apples have a long history of submitting exorbitant claims. I know I have whipped this horse before, but I want to beat this nag totally dead once and for all.

The misconception goes something like this: there are two kinds of salvage companies, those that send fairly priced bills (lets call them Base Hit Salvors) and those that send outrageously priced bills (we'll call them Home Run Salvors). Over the years, the Base Hit Salvors have found that many insurance companies continue to try and negotiate their invoices, or complain at the price even when the invoice was fairly priced in the first place. The Base Hitters feel that they are being forced to lower the totals of their invoices simply because of the history of the Home Run Salvors. In other words, The Base Hitters are paying a Home Run penalty.

To believe this, you have to believe that insurance companies have somehow adjusted their business practice to address this problem of Home Run Salvors, and now routinely quarrel with every salvage bill, no matter how reasonable the bill is, with the assumption that the bill must be too large. The blame for all the negotiating is placed on the Home Run Salvors, rather than on the insurance company, where it belongs.

If we are to accept that the Home Run Salvors have so much influence that their billing history has actually affected the way these huge insurance companies conduct their business, one must concede that insurance companies are comparing the salvage invoices they receive from Home Run companies with those invoices sent from Base Hit companies.

If they are not making this comparison, then the entire argument that one invoice could have an effect on another falls flat on it’s face, and this horse never left the barn. So, to buy into this theory that the huge claims make it hard to collect the small claims, you have to accept that insurance companies engage in invoice comparisons, if not between companies, then at least by looking back in time.

But wait a minute; wouldn’t the logical result of all this invoice comparing be that the insurance companies would recognize that the Base Hit invoices were more reasonable in comparison to the Home Runs? Wouldn’t the insurance company be more willing to pay those reasonable invoices, rather than less? (In which case Base Hitters would be thanking Home Runners for making their Base Hit prices look so good.)

And yet, this is not the case. Many of the Base Hit salvage claims are routinely challenged by the insurance companies; hence the complaints that it seems like insurance companies fight every salvage claim. The insurance companies are not more willing to pay the Base Hit invoices, and they continue to try and negotiate these invoices too.

We are left with only one conclusion: they are not comparing the huge, Home Run invoices to the Base Hit invoices they receive, and therefore the billing practices of the Home Run hitters is not logically the cause of all this contentious negotiating.

Perhaps there is some other theory that could account for all the negotiating, even when the invoices appear reasonable to the Base Hit Salvors?

I believe that the insurance companies should be attempting to negotiate practically every invoice they receive; especially those invoices that are by definition open to negotiations, like a salvage claim. They are large, publicly held corporations, and therefore their directors, managers and employees have a fiduciary, legally binding responsibility to do everything in their power to maximize the return to the shareholders. They are not in the business of paying claims, or to be friendly with outside contractors. Indeed, the large insurance companies have recognized the value of negotiations as evidenced by the rigorously and sometimes contentiously negotiated price lists for services like health care and automobile repairs. Allstate does not happily pay collision repair bills, they negotiate them: not because some repair shops always charge more than others, but because it is in the Allstate’s best interest to negotiate.

That is why the insurance companies try to negotiate lower prices; its good business.

Kent Dresser trains Assistance Captains in Bermuda

Kent Dresser developed and teaches the C-PORT Safety Management Systems course. You probably took the course, as have most of your captains. Kent will be conducting assistance towing training in Bermuda:

Confident Captain/Ocean Pros Conducts Specialized Training for Bermuda's New Marine Assistance Company, Sea Assist Limited - PR.com

Large Low Pressure system stikes East Coast

I'm holed up in Cape May, NJ, waiting for this stinking lousy weather to pass. This low was forcast to bring gusts around 45kts. We've had sustained winds over that for most of the morning, and local weather stations are recording gusts over 58kts.

My readers ask for more photos. Here is what Cape May Harbor looks like this morning.

Jones Act and the election

Red Right Returning avoids political topics when ever possible. But once in a while, politics may have a direct bearing on your business. With that in mind, I post this link to a document from the nice folks over at International Organization of Masters, Mates & Pilots. This simply states where the 3 major contenders for President stand on the Jones Act.

http://www.bridgedeck.org/WhatsNew/maritime%20issues%20-%20candidates.pdf

I'm not going out on a limb and endorsing any candidate or position, just thought you might find the information useful.

Yacht Sinks, Insurance company sues: The Princess Gigi decision.

If you attended the 2007 C-PORT conference, you probably remember my somewhat abbreviated seminar on salvage and insurance. Once the session was aborted, there were some heated debates about why insurance companies fight salvage bills. Indeed, some of the participants singled out one company as primarily responsible for the industry's billing problems with the insurance industry in general. I believe the term (supposedly used in the derogatory) was "[They] always swing for the fences." In baseball, that would be a good thing, but somehow when salvage invoice negotiations are the topic, there is an assumption that the salvors and the insurance companies are on the same team. If you believe that, I have some news for you; insurance companies are always on their own team, and do not invite other to sit in their dugout.
In fact, I have argued that insurance companies are financially obligated to negotiate whenever they can. They have a fiduciary responsibility to their shareholders, after all, to maximize their profits, not to recruit teammates. So they put up a good fight, and that fact isn’t evidence that one company has been charging too much.

Another reason marine salvage cases seem to be so vehemently contested is that most insurance companies have very little admiralty experience; they treat a marine loss like it was an automobile or a house, and hence their arguments are colored by landlubber laws, rather than admiralty.

Probably the best reason to fight an insurance claim is to avoid paying out over $7.2 million. In a recent case, Federal Insurance Company (connected with Chubb Ins) didn’t want to pay a total loss claim on a Mega-yacht that sank in the Bahamas. They didn’t have a single reason to deny the claim, but that didn’t stop them from seeking a declaratory judgment in federal court, denying any liability for the loss. You can read the judges decision here.

The decision is 40 pages long, but it is very interesting reading. A variety of surveyors, at least two yacht builders, banks, brokers, insurance agents are all called on to offer their opinions as to whether the yacht Princess Gigi was actually covered at the time of the sinking.

Point by point, judge Rakoff finds that the insurance company's evidence is immaterial, and in almost every example, he further states that even if you consider that the evidence was material, it doesn't constitute a legal reason to deny coverage. On more than one occasion, the judge questions the veracity of Federal employee's sworn testimony:

"....the court does not credit their self-serving and largely conclusory testimony." (bottom of page 13)

I urge you to read the entire decision. In this case, an insurance company wrote a $7.2m yacht policy without requiring a survey, and when provided the survey, didn't even read it. Once the yacht sank, all of a sudden everything in the survey is important. By their own admission, waiting for surveys is bad for business.

Lest you think this is just an isolated incident, driven by recent hurricane losses or the huge dollar amount involved, here is a $60,000 case from 1971 where the same Federal Insurance Co. attempted to weasel out of paying a total loss claim: http://bulk.resource.org/courts.gov/c/old/F2/450/450.F2d.779.19381.html

Back to my original point: how is it that one salvage company that started "swingin' for the fences" in 1984 somehow accounts for the actions of the insurance industry in 1971? Of course it doesn't, and the idea is completely bankrupt. The billing practices of one or two small salvage companies, attempting to maximize their profits, have zero bearing on how insurance industry acts, or reacts, when faced with paying out claims. They hate to pay claims, they are not in the business of paying claims, and they will employ a variety of strategies to avoid paying claims.

More Perdictions of $200/barrel crude coming

Another energy analyst is predicting oil going up to $200/barrel:

Crude oil prices could surge to $200 a barrel in the next two years, according to the Goldman Sachs analyst...He said: “The possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months."

Last month, Chakib Khelil, president of Opec, also warned oil could reach $200 a barrel. The number of oil option contracts betting on oil hitting $200 a barrel in December has tripled since the beginning of the year.

[click here for entire story]

This prediction is an even shorter timeframe than the previous one I posted here last week. We might see this price in 2 years, or less. Yikes!

The further mention of oil future contracts increasing is significant, because if market players are buying futures contracts at $200/bbl, that means that someone is actually betting real money on that price - which provides an indication that the analysts aren't just blowin' smoke. Of course, when you have the president of OPEC supporting the prediction, that is hard to ignore.

$200/bbl would translate into a retail pump price of $8-10 gallon. Oh boy.

TWIC Deadline extended to April 2009

The DHS issued this statement today:

The U.S. Department of Homeland Security (DHS) today announced that the final
compliance date for the Transportation Worker Identification Credential (TWIC)
program will be April 15, 2009, which reflects a realignment of the Sept. 25,
2008 compliance date set in the final rule. The seven month extension is a
direct result of collaboration with port officials and industry, and realigns
the enrollment period with the original intent of the TWIC final rule.

Owners and operators of facilities located within Captain of the Port Zones Boston, Northern New England, and Southeastern New England will need to comply by October 15, 2008. These three ports were selected based on favorable conditions that facilitate near-term implementation. These ports are ideal for initial compliance based upon geographic proximity, the size of their TWIC enrollment population, and respective enrollment efforts to date. Additional ports will be announced in the coming weeks, and the Coast Guard will provide at least 90 days notice prior to enforcement

The deadline has now been extended from Sept 25, 2008 until April 15, 2009 for licensed mariners to get a TWIC. But why wait? The gas costs for two trips to the TWICCEN will be more if you wait.

I love the part about "collaboration with port officials and industry". What a bunch of crap. They have been working on this for 5 years, and every step of the way, the 'industry' has been involved (mostly fighting the TWIC), and has said all along that the enrollment period was way too short and unworkable. Suddenly, with the original deadline only 20 weeks away, the TSA and DHS have reconsidered - sorry, realigned - the deadline.