IRMI Update—Issue #114
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
June 7, 2005
In This Issue
Colleague,
This time of the year is always exciting for us as we implement the finishing
touches on the agenda for the annual IRMI Construction Risk Conference. We will
have a dynamite program this year that will hit all the major issues—OCIPs/CCIPs,
construction defect, residential construction issues, broker selection, additional
insured problems, coverage terms and market conditions, safety and loss control,
contractual risk transfer and much more.
We're not quite ready to publish the agenda, but I am happy to announce that
Pat Ryan and Hugh Rice will be our keynote speakers. Mr. Ryan, executive chairman
of Aon's board will discuss the recent events in the insurance industry and
what he believes the long term impacts will be. Hugh Rice, chairman of FMI Corporation,
will review the major trends in construction and also address the renewed focus
on ethics that seems to be occurring in the industry.
This year marks the 25th anniversary of the IRMI Construction Risk Conference,
and we will celebrate it in Las Vegas on November 7–10. If you have not already
done so, please mark your calendar to reserve the dates. We will let you know
when the agenda is available on our Web site.
Thank you for your support and have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
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Where is the Risk Tip?
Unfortunately, we don't have a Risk Tip for this month because no one sent
one in for us to use. Why don't you send one for the next issue? It's a great
way to put yourself and your company in front of 30,000 risk professionals without
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There are now 667 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
We have recently updated IRMI Online to include the latest issues of our
newsletters, The Risk Report,
Captive Insurance Company Reports, and
Strategic RM, as well as supplements to
a number of the reference manuals. See a
summary of all the new stuff with direct links into the publications.
IRMI is accepting nominations for the annual Gary E. Bird Horizon Award.
This award was created to promote the awareness of innovative construction risk
management techniques and processes. Previous winners of the award include representatives
from Mo-Kan Construction Industry Substance Abuse Fund, Hoffman Corporation,
Southern Industrial Contractors, Rifenburg Construction, Cianbro Corporation,
Snyder Langston and Bragg Crane Services.
If you are proud of the accomplishments of your construction risk professional,
please submit your and your nominee's contact information.
In IRMI Update 113, Jack Gibson highlighted
some reasons why privately held companies should consider buying D&O insurance
and asked readers for their thoughts. Below are some of the responses received.
-
If a small or middle sized organization does not have insurance for D&O,
and some other areas, they are a sitting duck for lawsuits. When the cost
of defending yourself is too expensive, you will probably settle even on
cases where you might successfully defend yourself. Lawyers use that as
a tactic, as well as damages above policy limits. Remembering that insurance
pays for the cost of defense is an important consideration.
—Chuck Schramm, Agent, Lamb, Little & Co., Schaumburg,
IL
-
Privately held corporations should look into the executive package policy
including EPLI, directors and officers, and fiduciary liability coverage.
Although the EPLI exposure is more likely to receive claims activity, we
are seeing crossover claims (where the D&O policy is hit with a suit arising
out of an employment related claim) more frequently. The pricing of these
package policies is coming down to a very reasonable price. More competition
on this type of product is making it very attractive.
—Ted Grace, President, The Grace Group, Inc., Little
Rock
-
Our firm specializes in providing executive liability insurance for private,
emerging growth companies—mostly in the technology sector. In our experience
we've found that—especially in the tech industry—turnover (RIFs), competitor
claims of unfair hiring or trade practices, and venture capital shareholders'
expectations offer a plethora of exposures to suits.
Employment practices, misrepresentations during financing rounds, gaps
in indemnification agreements and bankruptcies are also common concerns
with high-growth companies.
During the past 36 months, we've assisted private company clients in
settling claims for tens of millions of dollars—while assisting several
clients with the transition from private ownership to an IPO. We generally
consider investor demands, growth pattern, employee count, and other factors
to determine the timing of the D&O insurance purchase. Generally, however,
this timing is dictated by venture capital fund investors or other outside
directors.
One quick example of a situation that is currently brewing: an emerging
growth software company hired a new CEO (demoting the founder to a lower
position) after receiving VC funds and the accompanying directives requiring
the change. The company is also revamping their growth plan and marketing
strategy.
Recently, the founder/former CEO was asked to step down from the board
with a generous severance package—he declined. Like clouds gathering overhead,
the shift in company strategy—plus the non-amicable departure of the founder/former
CEO, are amplified with the knowledge that potential future storms will
not be covered under their new D&O policy.
What a difference even 6 months can make!
—John Campos, ARM, CIC, Account Executive, Diversified
Insurance Brokers, Salt Lake City
-
Any sales organization may have exposures to "unfair business practices"
claims that may not be addressed by the CGL. An example I dealt with a few
years ago: My client had hired several sales people away from a regional
competitor. The competitor filed suit alleging my client conspired with
claimants former sales staff to utilize claimant's own client data to unfairly
identify, solicit, and win business. The CGL carrier provided limited defense
resources until such time they had determined coverage B did not apply.
D&O cover clearly would have been a better alternative than the CGL.
—Ralph Molyneux, Vice President, GSM Insurance Services,
Irvine, CA
-
Excellent point regarding D&O for privately held companies. Some of the
most contentious litigation arises from privately held companies --particularly
from outside family members that are minority shareholders who believe that
their interests are being ignored or abused. In some circumstances, courts
have held majority shareholders have a heightened duty to minority shareholders.
That is in part because the minority shares of a privately held company
have little or no market value because the shareholder often is prohibited
from selling other than back to the company. Such oppression of minority
shareholder rights in privately held companies is, in my opinion, an area
in which directors and officers are increasingly exposed. In addition, other
constituents of the privately held company, such as employees, customers,
and suppliers, for example, are increasing seeking legal remedies for what
they see are breach of reasonable care that adversely affects their interests.
In short, a privately held corporation must seriously consider its exposure.
With the advent of some portfolio type policies (D&O, EPL, fiduciary), many
companies should include such coverage as an integral part of their risk
and insurance program.
—Craig Stanovich, Principal Consultant, Austin &
Stanovich Risk Managers LLC, Douglas, MA
-
The inherent problem with the "packaged" executive risk type policies
is that unless the policy contains separate limits for EACH line of coverage,
one loss, say in fiduciary liability, can easily wipe any coverage, even
defense costs for all the other lines. Such an event would leave the persons
expecting to have coverage, and perhaps most important of all defense cost
coverage, bare for all the other exposures. We always seek separate policies
for each line of coverage, and in so doing, also seek to avoid an E&O claim
against us for inadequate limits.
—Tom Davis, President, Davis American, Ltd., Oak
Brook, IL
-
I represent several homeowner and condo-owner associations. That is a
case where I believe that the exposure is significant and that D&O coverage
is imperative. A disgruntled property owner can get nasty if he doesn't
like an assessment or persists in violating the rules, and the association
board can be a target of his frustration when it tries to collect the assessment
or enforce the rules.
—Norman Newman, Attorney, Dann, Pecar, Newman & Kleiman,
P.C., Indianapolis
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