TN 3 (08-12)
PR 07115.006 California
A. PR 12-125 OPINION – Representative Payee Insurance Policy Review: Los Angeles Men’s Place (LAMP)
DATE: August 3, 2012
The insurance policy submitted by a nonprofit organization (together with schedules and endorsements) meets the coverage requirements of POMS GN 00506.105 for officers and employees. In addition, it allows the agency to independently make a claim and collect on the claim as a loss party.
You requested that we review an insurance policy submitted by an organizational fee-for-service representative payee agency, Los Angeles Men’s Place, Inc. (LAMP), to determine whether the policy complies with Program Operations Manual Support (POMS) GN 00506.105. Specifically, you asked
Whether the policy permits the agency to independently make a claim and collect on the claim as a loss party; and
Whether the policy meets the coverage requirements for payee officers and employees.
Yes. The agency will be able to independently make a claim and collect on the claim as a loss party.
Yes. LAMP’s policy meets agency coverage requirements for both officers and employees.
POMS GN 00506.105 requires that organizational representative payees have a bond or insurance policy that shows that the agency is “guaranteed payment if [the agency is] the ‘loss party’ (in the event the representative payee is unable/unwilling to secure a claim).” In addition, POMS GN 00506.105 requires that an insurance policy cover the acts of all officers and employees and include the agency as an insured party in the event of “financial loss.” See also 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). The term “financial loss” means “financial loss due to fraudulent activities.” POMS GN 00506.105(C)(4)(d).
SSA’s Ability to Make an Independent Claim as a Loss Party
LAMP’s insurance policy addresses the agency in an endorsement that has modified the policy. The endorsement states:
Name of Loss Payee:
Social Security Administration (SSA) with respects to money, securities or property from theft while the insured is serving as a representative payee for Social Security and Supplemental Security Income (SSI) beneficiaries.
SSA is guaranteed payment as the loss party only in the event the Insured is unable or unwilling to secure a claim.
This endorsement satisfies the requirement that the agency be able to independently make and collect on a claim as a loss party. See POMS GN 00506.105(B). Even though the language “guarantees” payment directly to SSA only if LAMP is unable or unwilling to secure a claim, this policy language mirrors the language in the POMS. Therefore, the intent of the endorsement is consistent with the agency’s objective that it be reimbursed for losses, whether reimbursement is funneled through the payee agency or directly from the insurer.
Coverage of LAMP’s Employees and Officers
LAMP’s insurance policy covers, among other things, “loss of or damage to money, securities and other property resulting directly from theft committed by an employee.” LAMP Commercial Crime Policy sec. A.1, p. 1. “Employee” is defined as:
(1) Any natural person:
(a) While in your service . . .
(b) Who[m] you compensate directly by salary, wages or commission; and
(c) Who[m] you have the right to direct and control while performing services for you;
. . .
LAMP Policy sec. F.5.a, p. 13.
Although the policy language does not directly say that officers are covered, we conclude that compensated (paid) officers are covered based on this definition of employee. In addition, an endorsement to the policy provides for a schedule of “all non-compensated officers of the named insured” and states that “[t]he definition of ‘employee’ is amended to include your non-compensated officers shown in the Schedule.” The amendment included in the endorsement indicates that the original term “employees” includes compensated officers while both compensated and non-compensated “officers” are now covered by virtue of the endorsement.
The definition of “employee” is also best read as covering officers. An individual employed as a paid officer can meet the first two provisions of the first definition (1(a) & (b)). For part 1(c), although in practice the officers may be directing and controlling the corporation, from a legal standpoint, the corporation is the employer, and thus, it is the employer-corporation that has the “right to direct and control” the officers. Here, LAMP as a non-profit corporation has the right to direct and control its officers. Additionally, part 1(c) is best understood as distinguishing between an employee and an independent contractor, as the distinguishing characteristic of an independent contractor is that he or she is not controlled by the employer.
Moreover, LAMP’s insurance agent has written that the policy includes coverage for officers. See POMS GN 00506.105.C.4.d (“The insurance agent should advise if the officer(s) are covered under the employee dishonesty or theft clause and exhibited in the policy.”) Under California law, extrinsic (outside) evidence may be admitted to determine the meaning of a contract when policy terms may have more than one meaning. Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 40 (1968); see George v. Auto. Club of So. Cal., 201 Cal. 3d 480, 485-86 (Cal. Ct. App. 2011), rehearing & rev. denied (2012) (discussing and applying Pac. Gas and its progeny). LAMP’s insurance agent wrote an email stating that “you should be all set with this request from the Social Security Administration. . . . The policy form extends coverage to your . . . Officers. . . .” E-mail from Healy Ramey, Certified Ins. Counselor, Marrs, Maddocks & Associates Ins. Servs., Inc., to Maxine Phillips (Aug. 3, 2011, 4:46 pm). LAMP requested changes to its insurance policy in response to agency requests, and Ms. Ramey’s email indicates that the new policy is intended to satisfy that request.
Although we recognize that the policy definitions would ultimately govern, further support for this analysis is found in provisions of California statutes. California Labor Code section 3351 defines “employee” to include “officers” of “private corporations.” California Unemployment Insurance Code section 621(a) also includes officers in the definition of an “employee.”
Finally, we note that LAMP’s “Commercial Crime Policy,” with the code “CR 00 23 05 06” and “© ISO Properties, Inc., 2005,” appears to be based on a standard template used in other insurance policies the agency has reviewed. See, e.g., POMS PR 07115.012 Georgia, PR 10138, Adequacy of Coverage Provided by a Dishonesty Bond Submitted by an Organizational Representative Payee Applicant (Aug. 16, 2010) (concluding that the coverage did not include directors but). The Georgia opinion did not specifically discuss coverage of officers, but found the policy insufficient based on the prior requirement of coverage for directors and distinguished between officers and directors in this analysis. Id. In addition, the Georgia opinion concluded that an endorsement sufficiently extended coverage to non-compensated officers. Id. The agency should treat identical coverage provisions uniformly and consistently across regions.
LAMP’s insurance policy (together with schedules and endorsements) 1) allow the agency to independently make a claim and collect on the claim as a loss party, and 2) provides coverage requirements for officers and employees of LAMP. Consequently, LAMP’s insurance policy meets the coverage requirements of POMS GN 00506.105. Please note that we have not reviewed the dollar amounts of coverage provided and offer no opinion regarding whether the amount of coverage is sufficient.