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 “Isit my garage or my car that’s at fault?“). I received several interestingresponses to that column from readers, which I shared in last week’s column(see“Garagev. Roof Rack, Part II”). That column prompted even more commentsand suggestions from readers, as well as additional insights about theinsurance industry from industry “insiders,” so this week, we’ll revisitthe 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 “WhenI wrecked my first real racing bike, I thought I was just really unluckyto be out of my $2,800 bike. I initially called my agent’s office and spoketo his assistant and was told that the claim would not be covered. I wasvery 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 witha major home and auto insurer, called me and told me that he just wentthrough claims training and discovered that a claim like mine would infact 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 toldthem just to file the claim and let the adjuster determine the compensabilityof 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 toinspect the bike to verify the damage and do some research on the costof a replacement, etc.’ So after some wrestling with my local office andfinally just reporting the claim, I ended up getting a sizeable check thatwas 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 partof an engagement ring. And now I don’t ride my bike anymore, but that isanother story. (Of course, the not riding part isn’t exactly true, butthe 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 CLAIMSAND DRIVING UP MY RATES!!! Anyway, I might change my tune when Ido 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 reasonablyassimilate financially. If you have only one bike, and it’s what you useto get to work, and you can’t afford to replace it immediately, then youprobably have more need of insurance. If you have several bikes eachworth several thousand dollars, chances are you could live without oneof them for an extended length of time. Instead of giving monthly premiumsto an insurance company, put the same amount in a savings account. Whenyou get to 1X cost of bike, you’re 100% covered, with no deductible. Whenyou get to 2X cost of bike, withdraw enough to buy another bike.”• Finally, K.B. in New Jersey asks “Is the bar exam in Tennesseereally 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 insiderperspectives 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 othersthat contributed to the story and I applaud the accuracy and the detailthat 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 goodinsurance agent and tell them what you want. A lot of times the agentcan negotiate with the underwriter to make sure the coverage is there thatis wanted. The rate is cheap. The company we use will even cover the bikeif it’s damaged while racing. Very unusual because racing is almost alwaysan excluded peril even on ‘all risk’ policies. What a quagmire!”• “Another useful piece of advice for your readers is that not allinsurance 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 bikefrom 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 requiredto pay a claim then chances are it will be paid. If the policy doesnot cover a specific peril then there is no payment. The fact thatyou pay premiums for years and never make a claim does not change the legaldocument.”• “I work in the litigation department for an insurance companyin Texas. I have also handled claims before they became lawsuits, bothliabilty and first-party property claims. I found some of the commentsby ‘insurance industry insider’ in your recent column laughable. Perhapsthe company I work for is the exception rather than the rule; however insurancecompanies, contrary to popular belief, are most definitely in the businessof PAYING claims. If claims frequency rises, driving profits down, thenpremiums are raised; and this doesn’t accompany a communication, eitherexplicit or implicit, to start denying claims. Claims payments and payrollare 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 sothat the company can afford to pay COVERED claims and still make a profit.I understand that insurance policies may not be exciting reading, but Ihave little sympathy for the person who fails to read their policy whenthey purchase it and then complains that something is not covered afterthe fact. Additionally, neither my performance, nor the performance ofanyone I have ever met in the insurance industry, is graded on the amountpaid 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 intome that courts interpret ambiguous terms in insurance contracts in favorof the insureds and that adjusters have a duty to look for coverage, notto look for a way to deny the claim.”
• “You quote a number of ‘insiders’, several of whom madereasonable comments, but the following two I find objectionable. Indeed,I doubt the credentials of the writers. First, you have the ‘insider’ whosaid, ‘Insurance companies are in the business of selling insurance andmaking a profit. They are not in the business of paying claims.’ That’sa common cheap shot, but it’s pure baloney. Insurance companies are inthe risk business. We evaluate various risks using established actuarialmethods and facts. We calculate as best as we can how likely it is thatcertain events will happen within a population, applying the ‘law of largenumbers.’ We figure out what the average loss will be for that event. Weinclude how much we must collect from our policyholders to cover the likelylosses, make a profit and still be competitive against other companiesin the marketplace. When the claims come in we have enough money to payour overhead, pay the claims and still have some profits left over. I takea great deal of pride in the fact that my company pays out claims. That’swhat I tell our agents – ‘We are in the business of paying claims. It’sthe way we truly provide peace of mind to our policyholders.’If we were not paying claims, we would go out of business. What thelayperson does not always want to understand is that insurance companiesare in the business of paying claims for which the individual correctlyand accurately completed the application and which the policy covers. That’sa very simple basic premise. Yet, I see many policyholders who tell usfalsehoods about their risks and then expect us to ignore them. And I knowof many instances where a policyholder buys the policy from their neighborthe insurance agent, half listening to the explanations and not askingany questions, gets the policy, throws it in the drawer without ever readingit 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 somethingon the top of your vehicle covered, whether it be a bicycle, a ski rackwith 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 arenot available for it to make a profit – more baloney. Reserves are setaside in the aggregate, not individually by claim. Companies with trillionsof dollars in coverage and billions in reserves do not set the money asidewhen a claim is filed and stop making interest on the funds. Reserves areset aside in increments over time beginning with the first premium paymentaccording to the same actuarial principles that establish the rates. Theyare invested as dictated by state statutes and prudent investment guidelines.Asset liability matching principles are used to invest the reserves accordingto the likelihood that a portion of the total reserves will be needed inten days, three months, six months, a year or not for many years. The intereston reserves invested by an insurance company is a key factor in its incomeand cash flow. When the claim is filed there is a ledger entry made toearmark the possibility of paying out a portion of the reserves. The investmentprofessionals make sure that there is always sufficient liquidity to paythe likely aggregate amount of claims, and they make adjustments as neededto see to it that the cash is there. But the reserves do not suddenly stopmaking money and therefore there is no pressure not to pay.Bottom line – I’m an insider – the General Counsel for an insurancecompany. Also the President and Chief Operating Officer. And I spent 10years on the outside as a trial lawyer in civil contract litigation. WhenI 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 Ihave an obligation to understand what it is that I bought? Yes. I alsoread the warranty on the new Trek that I bought, and I read my cable televisioncontract, and the contract with my credit card, and the mortgage on myhouse, and the loan for my daughter’s college education. That’s the realbottom line on your article. Nobody wants to be responsible for their ownactions – including Tennessee lawyers stupid enough to drive their veryexpensive bicycles into their garage after failing to take the time toread their insurance policies.”
Don’t Try this At Home, Kids
Wait a minute…Did he just say “I see many policyholders who tell usfalsehoods about their risks and then expect us to ignore them?” But whatabout falsehoods on claims? Do you think somebody like this guy might raisesome insurance insider eyebrows?
“Thanks for the informative article about driving your bikeatop 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 insurancecompanies will protect themselves and deny a claim based on what we maycall loopholes. I understand the game so I’ll play along. What I did wasto find out what kind of accident would cover my beloved bike and that’swhat 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 stationwagon and forgot it was there. Later I jumped in the car and proceededto back over the bike. Yeah, that’s what I did. Now I don’t recommend committingfraud against your insurance company, however, my belief, as is so manyothers, is it’s the same type of accident. ACCIDENT I say. So I don’t haveany bad feelings of how I handled it.”
According to the Insurance Information Institute, fraud cost insurers $300billion dollars in 2004 alone. As you might imagine, insurance fraud resultsin higher rates for all policyholders—remember the guy who wrote to askpeople to stop driving up his rates? But how can claiming an accident underyour 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 bepaying 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 premiumspaid, the loss—the cumulative loss, really, of all the fraudulent claims—isborne 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 establishedinsurance fraud bureaus to combat the crime, with cases based on tips orinsurance 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’ttry this at home, kids.Even More Proactive Tips To Protect Your Bike
Okay, so having the right policy is good, having the right insurancecompany is good, insurance fraud is bad…Is there anything else you cando to protect your bike? Yes, there is. Remember the preventative adviceone reader offered? Well, several of you wrote to offer more suggestions:
• D.H. in California: Now I throw the garage doorremote 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 garagedoor as a reminder!• P.J.: “An even simpler solution is to leave the garage dooropener in the garage when you put the bike on the car roof. That forcesyou 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 bitof knowledge which I have gained since running my bike into the garageroof an couple years back. I take a large orange traffic cone and placeit in the middle of the garage entrance before I leave. This wayI can’t physically enter with out stopping and exiting my car to move thecone. Knock on carbon, but I have not put my bike into the roof oncesince implementing this system. It has even got to the point wheremy daughter Stephanie asks ‘Daddy can I put the cone out?’ beforewe leave.”• T.R.: “When I put the bike in the rack at the outset, Iset up an obstacle in the garage – usually a step ladder – that preventsme from entering the garage later without stopping first, removing thebike 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 installthe bike, the beer can has to be removed. I then sit this can in the spacewhere my car was. When I get home & the garage goes up, I see the Guinnesscan & am reminded of the bike. This system has worked beautifully,saving many incidents since I came up with it after driving my roof rackmounted Paramount into the garage, ruining it and my wife’s car.” SoC.S. is coming back to a warm Guinness? Do you suppose he’s British, andmisses 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 lawsare clearer when the accident is between two vehicles, which is one reasonI use a hitch rack. I was rear-ended in 2005 while parked in a parkinglot with my Klein locked onto the hitch rack. Witnesses heardand saw the event while I was shopping and helped security with the licenseplate of the hit-and-run offender. Officers visited the culprit’shome and brought her back to the scene. The culprit admitted ‘I heard anoise 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 warningsystem that spared my car from the SUV. I didn’t have to test the lady’sinsurance, but there is much less doubt regarding coverage in a rear-endcollision.”• 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 thecar. A van is nice, and I’ve never had a problem putting it in thebed of my pick up.”• E.C. in California: “My solution to not driving in the garagewith my bike on was two-fold. First, I make a little hanger sign for mymirror that said ‘BIKE ON ROOF!’ and put it on religiously whenever I putmy bike on the rack. The second thing I did every time I rode with my bikeon the rack was to take my garage door opener and put in on the floor inthe backseat where I couldn’t reach it. Even with that, I would still surprisemyself (‘Oh, I have my bike today!’) when I got out to look for the remotein my back seat.”• S.S., a Tennessee attorney who wrote last time: “Thanksfor the follow up article. I’m glad to see I’m not alone. Ihave now learned to put the garage door opener in the glove box anytimea bike is on top of the car. Of course, that doesn’t help at thedrive through window . . .”
The Bottom Line
The bottom line in protecting your bicycle is you need to choose yourinsurance company carefully, you need to choose your policy carefully,you need to read and understand your policy, and never, never drive intoyour garage with your unobtanium-framed racing bike attached to your roofrack.Good luck,
(Research and drafting provided by Rick Bernardi-law student-Lewis and Clark)
Bob Mionske is a former competitive cyclist who representedthe U.S. at the 1988 Olympic games (where he finished fourth in the roadrace), the 1992 Olympics, as well as winning the 1990 national championshiproad race.After retiring from racing in 1993, he coached the Saturn Professional Cycling team for one year before heading off to law school. Mionske’s practice is now split between personal-injury work, representing professional athletes as an agent and other legal issues facing endurance athletes (traffic violations, contract, criminal charges, intellectual property, etc).If you have a cycling-related legal question, please send it to firstname.lastname@example.orgBob will answer as many of these questions privately as he can. He willalso select a few questions each week to answer in this column. Generalbicycle-accident advice can be found at www.bicyclelaw.com.Important notice:
The information provided in the “Legally speaking”column is not legal advice. The information provided on this publicweb site is provided solely for the general interest of the visitors tothis web site. The information contained in the column applies to generalprinciples of American jurisprudence and may not reflect current legaldevelopments or statutory changes in the various jurisdictions and thereforeshould not be relied upon or interpreted as legal advice. Understand thatreading the information contained in this column does not mean youhave established an attorney-client relationship with attorney Bob Mionske.Readers of this column should not act upon any information contained inthe web site without first seeking the advice of legal counsel.