Insurance Insight: Market Trends, Coverage Concerns & Benchmarks , and Claims Management
Brokerage & Consulting Services Eric Slinger & Jeff Van Gulick Hub International - Colorado www.hubinternational.com AGENDA Who is Hub International? Real Estate Insurance Trends Coverage Concerns Unique Risks Executive/Management Liability Claims Management Questions?
2 WHO IS HUB???
3 COMMITMENT TO REAL ESTATE HUB writes over $804 million in real estate and hospitality premiums across the organization. We serve over 23,000 customers in this industry segment. We represent over 400 insurers who write business in the real estate and hospitality segment.
4 REAL ESTATE INSURANCE TRENDS
“As with the previous year, Nonbank Financials posted the highest average cost of risk per $1,000 of revenue among the 14 industries tracked in this survey. Since this group includes a number of real estate firms, property cost is the largest component of average TCOR [Total Cost of Risk] for companies in this industry.” -2014 RIMS Benchmark Survey
5 REAL ESTATE INSURANCE TRENDS
“With the spate of disastrous catastrophes over the past decade – which included Hurricane Katrina in 2005, the earthquake in Haiti in 2010, the tsunami in Japan and the earthquake in New Zealand in 2011, Hurricane Sandy in 2012, and the floods and hailstorms in Central Europe and Super Typhoon Haiyan in the Philippines in 2013 – the importance of property insurance is once again thrust into the spotlight.” -2014 RIMS Benchmark Survey
6 UNIQUE RISKS Commonly excluded – Earthquake Flood Pollution Terrorism Foundations, Underground Pipes Boiler & Machinery Vacancy Clauses – can restrict coverage based on occupancy of building Cyber Related Losses – fastest growing crime worldwide Business Income/Loss of Rent – i.e. HOW YOU GET PAID!! Majority of policies “cap” this limit and pay period Difficult to calculate in changing market Extra Expense What limits should I carry??? Lender required Benchmarks
7 THE NEED FOR D&O Given the broad nature of most state indemnification statutes, the vast majority of D&O Claims are indemnifiable by the Corporation. This being said, there are certainly situations where indemnification is not adequate and personal assets are at risk.
Historically, the primary areas in which indemnification has been deemed inadequate to provide sufficient protection are as follows:
1. Shareholder Derivative Suits . ability to indemnify such claims is severely limited by most states and is intended to avoid the circularity of funding which would otherwise occur 2. Violations of Securities Laws . claims brought under the registration and anti-fraud provisions of federal securities laws are non- indemnifiable, SEC’s long-standing view is that such indemnification is against public policy and unenforceable 3. Standards of Conduct . state statutes require D&Os to have acted in good faith and in the best interest of the Corporation . determination of conduct may be made by disinterested members of the board, special counsel, shareholders or by a Court of Law 4. Financial Constraints . unable to fund indemnification due to insolvency or cash flow constraints.
There is a definite need for Directors and Officers Liability Insurance Protection, the purpose of which includes: . Filling the gaps in corporate indemnification . Funding defense costs . Funding negotiated settlements or judgments
8 D&O INSURANCE CONTRACT RESPONSE
The D&O contract typically applies on an “all risk” basis to claims made within the policy period for “wrongful acts” commonly defined as: “any breach of duty, neglect, error, misstatement, misleading statement, omission or act by the directors or officers of the Company in their respective capacities as such, or any matter claimed against them solely by reason of their status as directors or officers of the Company…”
As is common with most insurance policies, certain exclusions do apply. Due to the all risk basis of this contract, thorough examination of policy exclusions is of the highest priority. The following are those exclusions, organized by category, common to D&O policies. Exclusions Based Upon Pre-existing Wrongful Acts . Known wrongful acts . Pending and/or prior litigation . Existing wrongful acts reported elsewhere
Exclusions Based Upon Public Policy . Fraud, dishonesty and criminal acts (“in fact” versus “final adjudication”) . Personal profit or illegal remuneration . Punitive damages (most favorable jurisdiction)
Exclusions Based Upon Insurance Available Elsewhere . Bodily injury / property damage . Pollution . General Partnership Liability . Professional Errors and Omission
Exclusions Based Upon Known Problematic Areas . Failure to maintain insurance . Securities claims (roadshow coverage)
Exclusions Based Upon Policy Intent . Acts outside the Insured Person’s capacity as a director or officer . Insured versus Insured . Outside Directorship Liability
9 BASIC POLICY STRUCTURE
Coverage Part “C” Coverage Part “A” Coverage Part “B” •Entity Coverage •Directors & Officers Liability •Directors & Officers for non- Indemnifiable loss Liability for Indemnifiable loss •Broad range of entity •First Dollar Coverage •Corporate coverage reimbursement Coverage for: retention applies •Entity claim •Shareholder derivative •Coverage for retention applies actions Corporations Indemnification of •Shared with “Side B” •Insolvency Directors & Officers for their liability •Duty of loyalty claim Personal Asset Protection Balance Sheet Protection (responds after satisfaction of the retention)
No Retention Corporate and Individual Reimbursement Retention
10 A LOSS OCCURS… WHO GETS PAID? “We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” – ISO Insuring Agreement
Know the type of coverage applicable, limits, exclusions, and deductibles or waiting period
Certificates of Insurance – not a legal document, but a great source of information
Status of Claimant? First Named Insured Mortgageholders Loss Payees Additional Insureds Subrogation
11 ADDITIONAL INTERESTS
Receipt of Loss Coverage Despite Type of Endorsement Typical Insurable Interest Typical Notice of Cancellation Payment Insured's Acts Mortgage Holders Holds mortgage on covered Exclusive For cancellation by the insurer Yes Provision or building(s) only. 30 days, except 10 days Endorsement nonpay. May include 10 days notice of nonrenewal.
Loss Payee Leases personal property to May be exclusive or None, unless specifically No Endorsement the insured, may also be a shared with the requested. creditor insured
Lenders Loss Payable Creditor with an interest in Exclusive For cancellation by the insurer Yes Endorsement covered personal property. only. 30 days, except 10 days nonpay. May include 10 days' notice of nonrenewal.
Additional Insured Owner of building(s) leased Shared with the None, unless specifically No Endorsement to the insured insured requested; check policy cancellation provisions.
12 CLAIMS MANAGEMENT Preparation Before a Claim Prepare a disaster recovery plan, focusing especially on continued operations. Appoint a spokesperson to give statements to media representatives. Have public safety officials tour the facilities to become familiar with the layout, safety features, and any special hazards, such as the location of any hazardous materials on site. Duplicate and store important documents/data off site at secure locations.
Steps Immediately After a Loss Make sure that the loss area is safe to enter. Report the claim to the agent and to the insurer. Restore fire protection. Take immediate action to minimize the loss. Protect undamaged property from loss. Take photographs of the damage. Identify temporary measures needed to resume operations and maintain safety and security, and the costs of those measures. Consult with engineering, operations, and maintenance personnel, as well as outside contractors, for an initial estimate of the scope and cost of repairs. Make plans for repairing the damage.
13 QUESTIONS???
Eric Slinger – Client Executive Jeff Van Gulick – SVP, P&C Practice Leader
1125 17th Street, Suite 900 1125 17th Street, Suite 900 Denver, CO 80202 Denver, CO 80202 Office: (303) 382-5162 Office: (303) 382-5176 Cell: (720) 331-9131 Cell: (303) 667-7831 Email: [email protected] Email: [email protected]
14