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 website.
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 paying $600 for an ad
in IRMI Update. Risk Tips are short (200 words) tips giving specific
bits of risk and insurance management advice. (Of course, product
promotions are not eligible—that's what the $600 ads are for.) Send
your Risk Tip.
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, AR
-
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, UT
-
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,
IN
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