Author: A.T.

Yesterday, I explained how Michigan drivers get such a better deal on the “people” portions of auto insurance than basically everyone else in the country.

They may not all think so, because it’s hard to know what sort of deal you have until you’re really hurt or you accidentally hurt someone else. But that’s where the Michigan system shines. (And isn’t that what the people portion of auto insurance is supposed to be all about?) Michigan drivers get virtually unlimited reimbursement for medical and rehabilitation costs, as well as decent wage-loss coverage, and for a significantly lower premium than drivers in most others states pay for far less protection.

In California, for example, drivers pay more money to get just $15,000 of coverage — which is particularly galling when you consider that it is not even $15,000 that covers them, only whomever they happen to hit, and that this $15,000 is then often reduced by legal fees. (Of course, Californians can buy much more coverage if they want. But millions of others, unable to afford even the legal minimal coverage, buy none at all.)

So why don’t all states just follow Michigan’s lead? The short answer, as you’ve heard, is the lawyers. Our misery is their income, and — while they surely wish us no harm — they don’t want to give up that income. Nationwide, it amounts to many billions of dollars a year, and there’s no way they’re going to give it up, any more than tobacco executives were going to admit, decade after decade, that cigarette smoking caused lung cancer.

But what if, for the sake of argument, the lawyers rolled over and let us have whatever auto insurance system we wanted? Would Michigan be perfect?

No. Pretty close (and vastly better than what we have now, so I’d grab it in a minute, if offered), but not perfect. Here’s why:

Poor Michigan Town Struggles With Funerals for 11 Crash Victims

As reported in the New York Times August 4, two mothers and 11 children were riding in a pickup truck July 29, coming back from a hot summer afternoon of swimming. One of the moms, Mrs. Jackson, driving with a suspended license, ran a stop sign. A dump truck rammed into her pickup. The two moms and eight of the kids died instantly, a ninth at the hospital. As of the date of the Times story, the two remaining toddlers were hospitalized in critical condition.

Michigan auto insurance would be terrific if these people had been able to afford to buy it. But as relatively inexpensive as it is, especially given its terrific benefits, not everyone can afford it. “And so in Albion,” reported the Times, “coffee cans and cottage cheese tubs have been turned into collection baskets, the Kmart has donated funeral clothes for the victims, and on Saturday, the Fraternal Order of Eagles lodge drew almost 400 people for a $3-a-plate spaghetti dinner.”

Yes, under Michigan no-fault, survivors and relatives of a horrendous crash like this do retain the right to sue. That’s actually one feature of the Michigan system that adds to its cost. But there are two problems with suing the dump truck driver. First, it wasn’t his fault, so they’d lose. Second, he was poor, too, so even if they won, there’d be nothing to get.

(“[T]he dump truck driver,” reports the Times, “… has a good driving record, is a volunteer firefighter who always worked and never caroused, friends said, and stayed at the crash site for hours helping to find the bodies of the children. He is so devastated he can barely talk about the accident, friends said, though he has paid visits to at least one of the victims’ families.” Well, you hear the lawyers wondering, can’t we sue him for something? Or sue his wife?)

So what’s the answer? How do you make insurance coverage less expensive, so more poor people can afford it?

• One way is to allow them to opt out of the pain-and-suffering-lawsuit portion of it. In Michigan, those suits are limited to only the most severe accidents, but allowing low income people to opt out would still save some money. Better to have unlimited medical and rehab reimbursement, plus good wage-loss coverage, than nothing.

• Another way is to offer low-income people the option to buy a smaller, but still meaningful, benefit. Perhaps a policy with a $50,000-per-person cap, and modest death benefits for tragic cases like this one. Clearly not as good — but less expensive and, again, much better than nothing.

• Yet another way: some sort of subsidy. You could, for example, cover all children under 18 automatically, by law, passing the cost of these cases on to everyone else. Personally, I’d be for that. And the mechanics are easy. (The state would set up an “assigned claims” plan, under which uninsured injured kids got assigned to insurers randomly, in proportion to the amount of business insurers wrote in the state. Insurers would increase their rates accordingly.) But when you talk subsidy, even of injured children, you enter the realm of political philosophy more than economics.

In today’s climate, particularly, the “perfect” auto insurance system may be Michigan’s, with one twist: low-income people would have the option of buying a less generous, less expensive policy, but one they could more likely afford. The sorrow in Albion would have been no less. But financially, at least, things wouldn’t have been quite so bleak.

As usual, if you care about this, spread the word. It may seem hopeless — it may BE hopeless. But this is America, and in America, anything is possible. Even real auto insurance reform.

Tomorrow: Keeping Up with the Super Joneses

In Michigan, the one state with a real no-fault auto insurance system, in place since 1973, people pay less for the “people” portions of the coverage than residents of many other states, yet they are far better protected — with unlimited medical benefits and rehab, plus significant wage-loss coverage — than anywhere else in the country.

So why wouldn’t all the other states flock to adopt a system like the one in Michigan? Because the lawyers, faced with billions of dollars in lost fees, do whatever it takes to keep the rest of us from having it.

That is old news, as regular readers of this column know all too well. (Sorry!) But there’s a bit of new news, which I’ll get to in a minute.

There are two ways of looking at auto insurance reform. One is just with common sense. If more than half the money people pay for the “people” portion of auto insurance goes to lawyers and fraud in some states, then a no-lawsuit system that inspired no routine fraud (there will always be a little organized criminal fraud) would obviously deliver consumers and crash victims more bang for the buck.

Or look at it this way. Could adding a lawyer to every health insurance claim possibly make health insurance a better deal? Could offering a cash prize to compensate for the pain and suffering of an illness possibly fail to encourage some people to exaggerate or invent their pain and suffering — or even, in some cases, to get sick on purpose? That’s what happens now. In California, three-and-a-half times as many people claim whiplash after an accident as in Michigan, where there’s no cash incentive to do so. And sometimes, people actually cause accidents on purpose to be able to sue.

To me, common sense — and the quarter-century experience in Michigan — should be enough. But it obviously hasn’t been enough, so any number of good people have tried over the years to analyze the data in more sophisticated ways.

The most recent example of this is a clever piece of work just done by Robert Hunter, who is sort of the dean of insurance-industry critics in America, the former federal insurance administrator under Ford and Carter, former Texas insurance commissioner (boy were the insurance companies happy to get rid of him), an actuary, and currently head of the insurance arm of the Consumer Federation of America.

He made a little list of all the states, with one column showing what kind of auto insurance system it had — 27 traditional lawsuit states, 14 so-called no-fault states, the rest hybrids — and then other columns showing how they ranked for cost.

Of course, most of the states that think they’re no-fault aren’t really, in any meaningful way. Indeed, they’re the worst of all possible worlds, because not only do they still have tons of lawsuits and tons of incentive to invent or exaggerate pain and suffering — they actually increase the incentive, with hurdles you have to meet in order to be able to sue. Example: in Massachusetts, from 1971 to 1987 or so, you had to have $500 in medical bills in order to be able to sue. (So everyone just went out and racked up that much in medical bills.) Then in 1988 the threshold was raised to what was meant to be a more meaningful $2,000. Over the next year, the average number of medical visits following an auto accident jumped from 13 to 30.

So whatever the statistical tests you devise, you’d expect Michigan to fare well, and the other so-called “no-fault” states to fare badly.

Which is as it happens exactly what Hunter, being an honest guy in no one’s pocket — least of all the insurance industry’s pocket — found. His report concluded:

Real no-fault, Michigan, succeeds under these tests. Ranked 3rd most expensive in the nation in collision prices, Michigan’s cost for “liability” [the damage-to-people portion] is only 32nd. And Michigan gives victims the remarkable unlimited no-fault medical and rehabilitation benefits!

For the five-year price-change test, Michigan’s collision rank was 16th [in the rate at which premiums rose] but only 42nd for liability [the damage-to-people portion].

Good no fault works! Bad no-fault does not.

Michigan’s benefits are so much higher than in other states you could understand how it might be expensive. But it’s not. You could understand how it might be vastly more costly than in the 27 traditional lawsuit states, like California. But it’s not. In California, if you’re really badly hurt — $100,000 or more in actual economic damages — you recoup just 9% of your losses from the auto insurance system. In Michigan, it’s much closer to 100%. Yet coverage cost less in Michigan than in most states and significantly less than in California. Why? Because most of the bodily-injury premium that is collected isn’t going to lawyers and fraud, it’s going to people with bodily injuries.

Now there’s a novel concept.

Tomorrow: The Problem With Michigan

“Up until now,” one of you wrote me almost a year ago, “you appear to have leaned toward index funds and to avoid market timing. Now, you are alluding to a high market. Are you suggesting it is time to pull out?”

“If you’re a market timer,” I wrote back, “it might be time to pull back, if not out — but study after study shows the folly of being a market timer . . . especially if you’re a market timer in a taxable account.”

Well, my advice stands (well, shifts a little, but largely stands):

• Don’t be in this market on margin. (And if you pay interest on credit cards or car loans, you’re in effect borrowing at an even-higher-than-margin-loan rate to be in this market.)

• If you’re lucky enough to have money in a tax-sheltered account, lighten up on the stocks. “But you’ve been saying that for so long, no one would have anything left to lighten up,” a friend of mine ribs me. But that’s not entirely true. Say you had a retirement plan that had grown over the last few years to $150,000 in stocks when I started saying this. You shifted $30,000 worth off onto the sidelines in some safe, liquid interest-bearing investment. Then the market went up some more and you had $150,000 again. Here came my stupid advice again, and you shifted another $30,000 off onto the sidelines, or to Russia or someplace. (The Templeton Russia Fund has about quadrupled since I started writing this column a year and a half ago.) Then . . . well, you get the point. One day, people with ready money on the sidelines, earning tax-deferred interest, are going to be envied and are going to have an opportunity to put that money to good use. Of course, the way things look today, that day might not come for 100 years. But it usually comes sooner.

• With taxable money, it’s much harder to bite the bullet and sell highly appreciated securities, especially if you have a high income and live in a high-tax state. There are many approaches to this problem. One is to try to find stocks in your portfolio in which, miraculously, you have little or no gain, not because they are unrecognized gems (hang on!) but because, well, things didn’t work out as you expected (or maybe you just bought recently at today’s high prices). Sell those for a minor gain or loss, with no appreciable tax consequences, and use that money to build your resources on the sidelines.

Let me conclude with this:

There are perfectly sensible reasons to remain 100% in stocks even today (though why 100% U.S.?), especially if you’re young and you have developed the magnificent habit of simply investing a slice of your pay in the market every month.

But these two are NOT among those perfectly sensible reasons: (1) “Why should I earn 5% interest on the sidelines when I can earn 15% or 30% a year in the market?” (2) “I have to stay in the market — it’s simple math: at 5% on the sidelines, I won’t accumulate the sum I need.” They are, rather, famous-last-words reasons.

From Vijay: “I am unable to understand this. When a company buys another company at a specific price, why does the bought-out company stock fluctuate? Would not the shareholders get the specified price if they held out for a while? Like in the case of Chips & Technologies, the Intel acquisition price is 17.50. But the stock is bouncing back and forth from 16 to 17.25. It has not touched 17.50. Who benefits from this kind of transaction? How would a long-term stockholder come out of this? Please explain.”

It doesn’t automatically go to $17.50 for three reasons:

• The time value of money — $17.50 a few weeks or months hence is not worth $17.50 today.

• The possibility the deal might fall through. Anti-trust problems? Misstated financial records? You never know.

• The impatience and irrationality of some investors — just as some people pay $50 to get their $623 tax refund a few weeks early.

Who benefits? When they do it right, big money arbitrageurs, who can afford to consult with lawyers and others to assess the likelihood of the deal actually going through, and who are happy to make half a point (or whatever) on a million shares — $500,000 for tying up $17 million for a while — knowing that if the deal did crater for some reason, they could lose a few million.

Some people live to buy C&T at $3 and sell it at $17. Others live to find $17 stocks that will almost surely be $17.50 a few months later.

You can tell a lot about a deal’s chances by the way the stock trades. If there’s a big discount, the arbitrageurs and others are saying there’s a real chance it won’t happen. If there’s a premium, they’re betting not only that it will happen, but that someone will bid up the price.

One final thought. Part of the irrationality I suggested above really isn’t all that irrational. It’s perfectly OK for two different people in different circumstances to have different risk tolerances and come to different conclusions. To someone with a $40,000 portfolio who paid $3,000 for 1,000 shares of C&T and has little time or expertise to assess the deal, taking $17,000 — a bird in the hand — instead of waiting for $17,500 may be quite rational. To someone with $500 million under management, the chance to make an easy $500,000 by tying up a mere $17 million may also be quite rational. It’s risk transference, not unlike insurance. For you to take the risk of your house burning down may well make no sense. Better to pay $1,000 to insure it. For someone with a billion dollars to take the risk of your house burning down, in return for $1,000, may well make sense.

I am, sadly, long back from vacation — that Great Narthern Tar I began telling you about a couple of weeks ago — the one where we piled into our Hertz with a supply of audio tapes (the first two, Angela’s Ashes and How the Irish Saved Civilization were outstanding, but left me tahkin fooney) and headed narth from Manhattan with a supply of restaurant-quality manual orange juicers I had bought in bulk, wholesale, to leave as house gifts at each stop along the way.

I told you about our first host, who asked us to guess what his dad gave him for his birthday (a shopping center), and a couple of others that got us up through Connecticut to Rhode Island. I’m not going to eat up the rest of your summer vacation telling you about mine, but a few more highlights:

• Saturday – drive from Tiverton, Rhode Island, to Truro, on Cape Cod. Truro is the most beautiful place in the world, with the added bonus, when things get a little too peaceful, of having its own quaint amusement park just a few miles up the road — Provincetown. Not to say Provincetown is literally owned or run by Disney (it’s a little too honky-tonk for that) or by the folks who run Coney Island (too many art galleries). It’s just this wonderful old fishing village, filled with little shops and restaurants and ice cream cone places — but almost none of it newly constructed franchises, none of it corporate. I love Starbucks, I love corporate. But not everywhere. Not always. In P-town, the only franchise is the old Dairy Queen on the way back from the beach, and that, of course, is no franchise — it’s an institution.

• So we’re strolling up Commercial Street after dinner with our friends Jim and Gayle — Jim, the rare coin potentate turned novelist I have written about before — they, thrilled with their new juicer, Charles and I enjoying the diversity of the passing parade, when I see, amid the tattooed and nose-ringed, my old investment banker college pal Ace. “Ace!” I shout over a couple of heads. (It was dark, but I’d know that cigar anywhere.) He turns and smiles and shows us the art gallery he and his wife have an interest in, or are major patrons of — whatever the connection, they get their own parking space, which in P-town in the summer is the last gasp.

• It is particularly good to see Ace, because he will know what to do about my knee. Other people, when they have an injury, call an orthopedic surgeon. I call Ace. He has torn more ligaments, undergone more orthoscopic procedures — the man shuttles between the golf course, the tennis court, the ski slope and the magnetic resonance machine. A few years ago, skiing in one of those places you have to helicopter into, he was the last man in a string of nine. An avalanche killed the seven ahead of him. And yet he still skis.

• “Your knee,” he said, pointing to his own two to show off his latest round of surgery. “You need to see Dr. Minkoff. He’s the best. If you have trouble getting an appointment, tell Diane you’re a friend of mine.” And that’s just what I did. (Anyone else out there ruptured his/her anterior cruciate ligament? Was the surgery worth it? All comments/suggestions welcome.)

• Monday – We drive from Truro to Boston in search of people to give juicers, and stop in North Quincy to visit a family I had last seen in Moscow. Now they live in North Quincy. I worry that their talent and energy are needed in Russia, but it makes me so proud of America — and happy for them — to see how they’re living. Dmitri came over first to get a job and earn the money to bring Tanya and their daughter Sasha, who after just one year here, aged 11, speaks perfect American and excels in school. They’re thriving. Tanya insists we eat some wonderful Russian things she has prepared. Dmitri pulls out the camera. They promise to use the juicer just as I instruct: leave the oranges in the refrigerator overnight — the Sunkist thin-skinned juicing kind — and then drink the juice straight from the stainless steel cup into which it flows. Gotta run.

• Later Monday – dinner in Cambridge at John Harvard’s Brew Pub, not because we like brew so much, but because we like the owner, who invited us to see it. He’s got 11 of them so far and hopes to have several hundred one of these days. His wife has to cancel at the last minute. She runs one of the world’s leading management consulting firms, but it wasn’t some crucial client meeting that ran long, it was emergency dental surgery. “Ouch!” as the campers gathered round the campfire the next night would say at every opportunity. (Tuesday we went to South Watafud, Maine — population 7 in the wintuh, 200 in the summuh. We were visiting Camp Wigwam, where my dad was Best Camper 1933, and I was a pretty good camper too, and where the tall pine trees stand patiently, majestically, quietly, overlooking Bear Lake. Richard Rodgers wrote one of the camp songs. Einstein visited for a little vacation. The trees have seen it all.)

• Finally Monday we arrived at the Ritz Carlton on Arlington Street, a stone’s throw from friends who would have been happy to put us up for nothing (well, maybe a juicer), but Charles had begun to panic, understandably, at the idea of staying night after night with a bunch of strangers (to him) and so, to make peace, I had booked us a suite (well, a junior suite) at the Ritz. This is not behavior that comes naturally to me. We arrive at the counter, guaranteed reservation in hand, and are told that, to the hotel’s great regret, some guests who were supposed to check out did not, and the Ritz was hoping we would allow them to put us up for free, with complimentary room service, either across the river at the Hyatt — they would take us over and back in the Ritz limo — or else upstairs in a “parlour room” with no shower. And herein lies the difference in a nutshell between Charles and me. I am thinking, Yes! A free room at the Ritz! Free room service! Charles is . . . well, really angry. (And you don’t want to be around the Irish when they’re angry. Ireland. Land of Ire. I think I’ve mentioned this before.) He was of course dignified in his handling of the situation, but it was the storm clouds in his eyes, I think, that got us the free room service. To me it was, of course, the highlight of the trip. For the lack of a shower, we saved $500. I invested it in Apple at $13 and now it’s $1,000! Well, no, it isn’t. I stupidly sold much too soon. But hand me $500 and a hot wet towel anytime.

There was a little more to our vacation — we saw two moose, we saw three loons, we had a magnificent panorama of the Rangely Lakes, where I had last paddled a canoe 38 years earlier. We gave juicers to my old high school soccer coach and his wife in North Belgrade, and to Bob and Carol in Rangely. We stopped in Freeport — the “factory outlet” theme park anchored by L.L. Bean (now there’s a zoo). We listened to The Runaway Jury on tape all the way to Southern New Hampshire, where we stayed with the estimable Jerry Rubin, the real creative genius behind a software program called Managing Your Money, even though I got all the credit for it. (Jerry and Marilyn are fine. Their two little boys are now both working at Rubin Associates, the family software business, both expecting kids of their own — time flies.) And we dropped the car at Logan Airport, where Hertz charged us $3.90 a gallon to fill our tank. The Delta shuttle, it being a Saturday by the this time, was half price — $90 less the $10 worth of frequent flier miles.

I’ve been writing this stuff for a lot of years now, and every so often I get to the part where I explain how, when interest rates go up, bond prices go down and vice versa. This is largely true of interest rates and stock prices, too. But with bonds, I’m never sure my reader or listener fully grasps that it’s absolute — just two sides of the same coin. Like: the more water there is in the glass, the less empty it is. (Not “the less empty it tends to be.”) Or like a see-saw: when one side goes down, the other side goes up. (Not: “unless there’s some flexibility in the wood.”) No matter how heavy the children on the see-saw, it never bends or it snaps.

There is not the slightest magic or wonder to this, except that it’s so hard to explain to some people. If you have a 30-year bond that yields 7% — $35 a bond every six months for 30 years — and if someone reports that the going rate on such bonds has fallen to 6.6%, it can only mean that the price of the bond has risen above $1,000, such that, when you do all the math, those twice-a-year $35 checks work out not to the 7% they would at the stated $1,000 price (par, for a bond), but to just 6.6%.

I’ve thought of another analogy for this: foreign exchange. Any two currencies will do, but let’s take the US and Canadian dollars. If the US dollar goes up against the Canadian dollar, is there any conceivable way the Canadian dollar does not simultaneously and in a precisely symmetrical way go down against the US dollar? Not sometimes, or “isn’t that remarkable,” but just two pieces of a single, interlocked thing.

In fact, this is so simple and obvious I suspect it was very clear to you until reading this comment. Now, you’re not so sure.

“As I read Steve’s experience with property insurance,” writes Tom from Novell, “I was reminded of an experience I had with auto insurance a few years ago. Luckily it involved only my premium, not a refusal of my company to pay. It illustrates, however, the industry’s indifference to customers.

“My wife and I had three teenagers, a very modest new car, and an old clunker. Both cars were insured under the same policy. When the clunker no longer ran, we decided not to repair or replace it. This was based in part on the cost of insurance. I called our insurance company at once and told them to take the car off our policy.

“The customer service representative was helpful. She gathered information, ran figures through her computer, and told me what the increase in my premium would be. I patiently explained that I was dropping, not adding, a car. She understood, but our children had been rated against the older car and were now rated against the newer. Hence, our premium was higher.

“I had a discussion with her, and then with her supervisor, neither of whom understood why I thought it unreasonable to be charged more to insure one car than two. I suggested we go back to insuring both, but they refused.

“I could only conclude that insurance premiums, like airline fares, are designed to be incomprehensible to those who pay them.”

Fascinating — as anything counter-intuitive is fascinating. I don’t think the company was being “indifferent to its customers,” as you put it, just intriguingly rational. I guess they figured that in families with two cars, the kids get to drive the clunker. And so now, with just one car, they would be taking out the Jaguar from time to time (OK, I know it wasn’t a Jag, but to make the point) . . . and dented Jaguars cost a lot more to fix than dented clunkers. The liability portion of your policy remained unchanged (I’m guessing), because your kids were no more or less likely to run over a little old lady in the Jaguar than in the jalopy. But the collision — coverage you probably didn’t even carry on the old clunker, if you were smart — increased in price because now any fender they dented would be the Jaguar’s.

Of course, it’s always a good idea to shop around for insurance — even today, as you read this. But not, in this case, in my view, because the insurer was uncaring. Their one mistake was in not managing to explain it more clearly.

“Similar story,” writes Dr. D, “only with an A.M. Best A+ rated company and disability insurance. This company no longer sends premium notices as they want me, and no doubt others, to drop their policies. Their response is, ‘the policy does not ****require**** us to bill you, it is your responsibility to pay.’ Switching companies is not possible for me as most companies consider me ‘overinsured.’ Insurance companies are clearly, and legitimately, in the business of making money for their stockholders; but if they need to pay some benefits to do that, so be it.”

Now that one’s a little closer to skanky, if you ask me. If their normal practice is to send bills, they should probably just take their lumps on this policy and treat you nicely, and send bills, even if their actuaries tell them you are not a good risk. (If I read you right, their problem is that they’ve committed to pay you so much if you’re disabled, they fear they’re giving you an incentive to fib a bit, or exaggerate, if you ever have an accident or hurt your back or start injecting yourself with some of the pain killers in your doctor’s bag.)

It’s kind of like an all-you-can-eat restaurant that sees Haystacks Calhoun coming up the steps. (Is anyone else old enough to remember that name? Is he still alive? Not still wrestling, I presume. What does he weigh now?) Heck, the sign says “all you can eat,” and so they should be as gracious to old Haystacks as to anyone else, even if the owner in the back expects to lose money on him.

Variable annuities, which sell like hotcakes, but which I’ve suggested many times before are not such a great buy, have become a somewhat even less great buy — as one might have guessed they would, as a capital-gains tax cut had been hanging in the air for some time. They are an inadvertent means of converting what would otherwise be lightly taxed long-term gains (if you just held some growth stocks or an index fund) into more heavily taxed ordinary income as you withdraw the money. Now, with the lower capital gains rate, that’s even more of a drawback.

Why pay a built-in sales commission, along with a management fee and a life insurance fee, only to lock yourself into a variable annuity manager who may or may not do a great job but who will, in any event, wind up providing you with fully taxable money at the other end, 10 or 20 years from now when you want to spend it?

For those of you already in such investments, don’t feel bad: you did the right thing by saving money in the first place. That’s the big issue, even though I do frankly think you could have done even a little better just buying a couple of index funds on your own.

From Paul Fischer: “You’ve recently explained how Stop Losses and Stop Limits work, and the pros and cons of each. I was wondering if you could explain trailing stop losses. I have heard the term, and I know what I think it might be but I would be grateful if you could clear it up for me.”

Actually, I didn’t know the answer to this one, so I asked one of Ceres’ trading managers, Mike Reynolds. His reply was that some firms — not Ceres — will allow their customers to place buy orders on stocks, with a contingent stop order that will activate once the buy order executes. In other words, you’d say, “Buy 100 Dell at 77, with a stop-loss at 74.” If the stock traded down to 77, you’d get your 100 shares — but if it then traded down to 74, a sell order would then be triggered.

From Gregory Germain: “A friend asked an insurance question I don’t know the answer to, and thought you might. His daughter is about to get her license at 16. He wants to give her an old (but safe) car to drive. The question is, are the parents liable for an accident by the kid, so that they need to get high limits insurance for her? Or can she get her own insurance with lower limits?”

Oh, sure — “a friend.” I’ve heard that one before. Let’s face it: this is your kid, Greg, and you’re scared to death. No? Well, anyway, here’s the answer.

It depends. And varies from state to state. For example, California makes parents liable for the “willful misconduct of a minor which results in injury or death to another person.” (A minor, in California, is any kid under 18, unless you’ve gone through formal procedures to “establish their emancipation” at an earlier age. Needless to say, I didn’t know any of this; I asked a knowledgeable lawyer.) But when it comes to auto accidents, a parent can also be held liable for any negligent act of the child — as can the person who signed the child’s driver’s license application.

The good news, in California, is that you could only be held liable for the statutory minimums out there — $15,000 per person up to a maximum of $30,000, and $5,000 of property damage — even if your daughter maimed the entire high school water ballet club. (The bad news is that most of the money people pay for injury auto insurance in California goes to fighting over things like this, and fraud, rather than to helping you or your daughter if you’ve been injured.)

Ah, but you’re not from California? Me, neither. Unfortunately, you’ll need to talk to a good insurance agent or, if need be, a knowledgeable attorney. Sorry. There’s no one-size-fits-all.

Steve lives in Connecticut, known as “The Premium State” in recognition of all the insurers headquartered there. OK, I’m kidding. (It’s — of all things — “The Nutmeg State.”) But where Idaho has potatoes and Texas has lone stars, Connecticut has Yale and insurance companies. Lest one think the world has changed too much since 1982 when I wrote The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know (out of print, don’t bother), Steve offers this cautionary tale:

Over the years I have had two major instances in which insurance should have immediately covered me but was either unreasonably delayed or refused.

In the first case, resolved long ago, we had just moved from one apartment to another. One of the first nights a fire broke out in the complex. We lost all our belongings and apparently we were covered by two policies: the policy for the new apartment and the 30-day overlap coverage from the old one. Needless to say the two companies fought and we didn’t see any money for years. This was my first taste of the insurance industry and helped make my decision not to take over my father’s insurance agency. The insurance industry had no sensible approach to customers.

In the case this year, we had dutifully paid liability premiums that were extremely high for most of 20 years. The details are involved, but the basic problem was that our insurance agent had arranged for financing with a different company than normal. We were sued two years after an event and found out that for a couple of months our policy had lapsed and the company had insisted our agent reapply rather than reinstate. If the company had merely reinstated immediately, we would have been covered. Instead their insistence that the agent reapply caused us to be uninsured.

The reason for the lapse was that we had paid the agent 1/3 of the policy up front and were told we would be billed as in the past for future premiums. We were never billed by the agent or finance company. We were never notified by the agent, finance company or insurance company for impending or actual cancellation. We first found out about the lapse when our agent called and said his office had just found out about the cancellation. Our first correspondence from the finance company was one week later and said we were owed a refund and didn’t even mention the cancellation. The agent reapplied to the same company after they refused a reinstatement. During the period of reapplying this incident happened, which we were to be sued over the next year.

The insurance company (Western World) refused any help or support to fight a suit that involved a 4-year-old child left alone in a back hall in an athletic club by a parent. Later the parent sued us for his child being injured. Our first feeling was that the insurance company should fight the suit on the basis that leaving a child of 4 unsupervised in a dangerous environment was irresponsible. In fact, in Connecticut it is considered child abuse to leave a child unsupervised in much safer environments. However, we were left to fend for ourselves and the suit was finally settled.

The agent has done the right thing and helped share the cost. I have heard that this treatment of customers by the insurance company is widespread and would like to initiate action to recover our loss and legal fees plus damages on our and others’ behalfs from the insurance company and finance company. The suit out of pocket was approximately $7,500, but that was minor compared to the time and anguish, especially to my wife. We could have lost our house and all our possessions. What especially is irritating is that over the years we have paid this company over $100,000 in total with no claims ever. You would think a rational company would want to retain a loyal customer. Because of their actions, we now have a much better policy with AIG for 1/3 the cost with nowhere near the amount of exclusions.

We have never sued anybody, but it looks like we will get nowhere without legal action. Are there any lawyers out there that specialize in insurance problems like this — improperly terminated, no notices, and not reinstating immediately?

There are clearly some lessons here (and yes, I referred Steve to a famous trial lawyer who loves to sue insurance companies). One is: keep track of your insurance policies and make sure they’re paid up. Another is: shop around. Look how much Steve is saving now that he’s found another carrier. A third is: when shopping, consider claims-paying reputation. It seems that Steve’s agent may not only have bobbled some of the paperwork to the finance company, it neither got him a good price nor a carrier with much of a feel for keeping customers happy. A fourth is: shop for a good agent as well. Why didn’t Steve’s agent find him the 2/3 cheaper policy in the first place? And while “helping to share the cost” is commendable, it may be that the agent should really have paid the full cost, since it appears, from Steve’s account, as though it was the agent that screwed up. The insurer was nasty and short-sighted but may not have violated any contractual obligations.

The final thing I’d mention is the phrase “bad faith.” When your insurer is mistreating you, it may help to send a certified letter explaining why you feel it is acting in bad faith, and that you are on the verge of hiring a lawyer. If that doesn’t produce a reasonable settlement promptly, you may indeed want to retain a lawyer. (But try your own letter first and save the 33% or 40% the lawyer would charge.) The phrase “bad faith” means you see the potential not just for the $2,000 or $12,000 you think the insurer owes you, but for $5 million in punitive damages as well. Insurers understand that. You’ve paid your premiums; they should deal with you in good faith. Generally, in my experience, they do. But boy are there a lot of exceptions, as Steve’s experiences remind us.