Advanced Liability final.....

Price per million

- one million of the layer divided by the premium

Federal Participation Trigger (TRIA)

-Under TRIA the gov will not make any payment for certified acts of terrorism until the aggregate industry insured losses in a single calendar year resulting from the certified act meet or exceed $100 million.

Insured versus insured (D&O exclusion)

-a D&O policy exclusion -typically exclude claims brought by or on behalf on any other insured, such as on director to another -introduced in 1980s following suits by a few major banks against their senior loan officers for allegedly acting wrongfully in approving large loans on which the borrowers defaulted

Punitive Damages exclusion endorsements (TRIA)

-endorsement that excludes payments for terrorism related punitive damages resulting from civil actions -denies coverage to policy holder for certified acts of terrorism punitive damages of both the indirect and direct type

Lines that TRIA does not apply to

Does not apply to the following lines -commercial auto -professional liability -burglary and theft -farm-owners multi-peril -crop -private mortgage -medical malpractice -financial guarantee -life and health -flood coverage under the National Flood insurance program (NFIP) -Reinsurance -Surety

Duty of care (D&O)

Said to have met this duty if: -act in good faith and in a manner they reasonably believe to be in the corporation's best interest -discharge their responsibilities with informed judgement and a standard of care that a person in a similar position would deem appropriate under the circumstances -business judgement rule is in effect

Types of suits against D&Os

The suit types are as follows: -derivative -non-derivative suits -class actions

bumbershoot policy

-an excess marine policy that operates in the same manner as a an umbrella policy -providing not only excess limits but also drop down coverage for some claims not covered by the underlying insurance -underlying policies are usually marine coverages, but also non-marine such as shipyard or ship repair facility -reason for its existence is even umbrella policies are restrictive on marine risks

NBCR exclusion endorsement (TRIA)

-because of the unpredictability the long term effects of terrorist attacks that use Nuclear, biological, chemical, or radiological materials, the TRIA does not mandate coverage for losses for such acts (when such coverage is not provided in the base policy) -exclude loss caused both direct and indirectly from NBCR -endorsement may be offered to the insured, at insurers option, only when the insured denies certified acts of terror coverage

prior acts coverage (D&O)

-coverage under a claims-made liability policy for events that occurred before the policy's inception -can also be provided when the company offers a retroactive date precedes the current policy's inception date

following form excess policy

-covers a claim in excess of the underlying limits, only if the loss is covered by the underlying insurance -most today contain endorsements limiting coverage. -if the underlying policy would provide coverage for a loss that the excess policy would not cover, the provisions of the excess policy may take precedence, thus covering a lower scope of events then the primary policy

Underlying limit

-defined to mean either of these values: 1) limit of the applicable coverage listed in the umbrella's schedule of underlying insurance 2) the self insured retention (SIR) shown in the umbrella declarations (if the underlying coverage does not apply)

Buffer layer

-layer of excess insurance between the primary layer and the umbrella layer of an organization's insurance program -this is used when the umbrella insurer will not provide coverage unless the insured has underlying coverage limits higher than those that the primary insurer is willing to provide. -EX. a umbrella policy will only accept the insured if they have 2 million in underlying layers, but they are only able to get 1 million from their primary insurer. Can accomplish this by purchasing a liability excess policy with a 1 million limit to reach the 2 million threshold

Combination excess policy

-may follow form u/l with its own terms and conditions -may contain coverages broader than underlying but does not "drop down" below its attachment point.

NCCI

-national council on compensation insurance -offers TRIA related endorsements to address TRIA related coverage in WC

basic functions of umbrella policies

-provide additional limits above each occurrence limits of the insured's underlying policies -take the place of the underlying insurance when underlying aggregate limits are reduced or exhausted -cover some claims that are no covered by the insured's underlying policies, subject to a self insurance retention -Latter two functions known as "Drop down coverage"

Loss sharing provisions (TRIA)

-provisions require insurers to meet a deductible before any federal reimbursement will occur. -After the deductible is met the remaining losses up to an annual aggregate program cap are shared between the insurer and the federal government on quota share (proportional) basis

rate relatively

-refers to the cost of the layer in comparison to the one below it. -calculated by taking the price per million of layer 2 and dividing it by the price per million of layer 1. -For layer 3 it would be layer 3/layer 2 and etc.

Specific vs aggregate excess

-specific requires a single loss to exceed a per occurrence retention. -aggregate requires that the cumulative costs of all losses exceed all retention. -combination is a mixture of both

Coverage A insureds (D&O)

-the insured are the individual directors and officers, generally defined to include any persons who were, no are, or shall become duly elected/appointed directors or officers of the insured corporation -in the event of a death, incapacity, or bankruptcy of the insured, coverage is usually provided for any claim against his or her estate, heirs, legal representatives, or assigns -many policies provide coverage for claims against the spouse of any D&O arising solely out of the capacity as the spouse of an insured person

Certified Acts exclusion endorsement (TRIA)

-this endorsement excludes coverage for certified acts of terror when the insured as declined the insurer's offer of TRIA -may be attached for each line of business and coverage that TRIA applies -do not apply to a loss that is caused by acts of terrorism that are not certified under the federal program -Standard fire policy (SFP) is used in certain states, that they require for insurers to offer coverage for a fire loss resulting from a certified act of terror, that is equal to the SFP requirement

Cap Endorsements (TRIA)

-this endorsement informs the policy holder of the 100 billion annual aggregate insured losses -clearly describes certified acts of terror for TRIA -informs the policyholder that it is the insurer's responsibility to pay losses for certified acts of terror will end if the program cap is reached. -the US treasury secretary will determine who gets the pro rate shares should that occur.

Claims-made provisions (D&O)

-this feature prevents the possibility that multiple years' policies being triggered from a series of related wrongful acts -occurrence trigger language may be use, but this trigger is much better from the insurers point of view

liability layers

-underlying insurance is the insurance in the lower level. -Ordinarily the coverage provided by the primary insurer must be exhausted before the next layer makes any payment -the primary level in an insurance program is not always financed through insurance, some retain/self-insure the first layer if they have the funds to pay sizable losses

Examples of common D&O allegations

These allegations include: -providing false or inadequate disclosure in connection with stock issuance -making or permitting the making of false entries in the corporate books and records -preparing and signing false documents filed with regulatory authorities -failing to correct inaccurate statements within a prospectus issued by the corporation -failing to review annual financial statements and monitor corporate affairs -missing an opportunity for expansion, acquisition, or sale of the corporation

Duty of Loyalty (D&O)

-D&Os have the general duty of undivided loyalty to the corporations they serve -cannot secretly seize to themselves a business opportunities that properly belong to the firm -Model Business Corporation Act provides that directors must discharge its duties (Including committees) "in a manner the director reasonably believes to be in the best interests of the corporation -Under common law and the SEC act of 1934 no director or officer (or any person) may use insider info to buy or sell stocks of the corporation -section 16(b) of the SEC act requires 10% owners, D&Os to disgorge "any profit realized form any purchase or sale, or any sales and purchase of any equity security" within a 6 month period -if a person used insider material, the buyer or seller may have grounds for a suit

TRIA History

-September 11, 2001 awoke the US insurance industry to the catastrophic loss exposure posed by terrorists acts -Insurers responded by excluding terrorism losses from commercial property policies, especially for risks in central business districts -most reinsurers announced that they would exclude terrorism coverage in their contracts -Congress and the President signed the Terrorism Risk Insurance Act (TRIA) of 2002 to help alleviate the urban economic instability, lack of growth, and job loss that occurred after 9/11, allowing property owners to secure financing to resume construction projects had been halted in absence of such coverage

auto coverage endorsements (TRIA)

-TRIA does not apply to auto insurance regardless of what ever coverage is the form (BAP or PAP) or included along with other commercial liability coverages in a commercial umbrella or excess policy -These endorsements can either cover or exclude acts of terror with regards to auto liability exposures, regardless of whether coverage for terrorism is provided or excluded for exposures other than auto

Disclosure endorsements (TRIA)

-TRIA requires insurers that they inform policy holders of about the costs and limitations of terrorism coverage through 3 required disclosures 1) portion of the policy premium that is attributed to certified acts of terrorism, additionally insurers must list (in an endorsement or in the policy declarations) the coverages to which that premium applies 2) federal share of compensation for certified acts of terrorism under the program. After the insurer's deductible is met, the federal share is 85% of losses attributed to certified acts up to the program cap 3) amount of program cap (100 billion). this disclosure must explain that if the program cap is exceeded, then the amount of coverage for certified losses may be reduced at the discretion of the US secretary of treasury.

TRIA extensions

-TRIA was set to expire at the end of 2005 -TRIA was modified and extended two years by the Terrorism Risk Insurance Extension Act (TRIEA) -before TRIEA expired the Terrorism Risk Insurance Program reauthorization act (TRIPRA) of 2007 further modified and extended the TRIA -TRIPRA of 2007 was modified and updated to TRIPRA of 2015 for 6 more years

TRIPRA 2015

-TRIPRA expired in December 2014 without renewing -nearly 1 million businesses were at risk of losing coverage -This was passed in Janurary 2016 to combat this -Wharton Report notes that Insurance Companies could already be over-exposed to Terrorism events and may become insolvent before they can pay claims. (2014) -A Rand Corporation study (2014) supports government support of TRIA to alleviate payments for Disaster Relieve -As of TRIPRA renewal (2015), this is increased by $20M per year until $200M limit is reached in 2020. -TRIPRA (2015), starting in Jan 2016, this increases $2B a year, until $37.5B

Workers Compensation Endorsements (TRIA)

-Worker's compensation insurance is subject to TRIA, therefore insurers must include coverage for certified acts in their WC policies -NCCI developed endorsements to help insurers comply with TRIA -discloses the WC premium that is attributed to certified acts of terror -Unlike others the WC policy states that an insured loss means any loss resulting from an act of terrorism, including war, for worker's comp -also describes insurer's deductible under the program (20% of direct premium earned in the prior year)

umbrella endorsements

-a "contractors limitation endorsement" can be added to restrict some coverage -"broad as primary endorsement", states that umbrella will provide coverage at least as broad as the underlying policy, without removing any of the umbrella's already broader coverages, difficult to obtain -"following form endorsement", limits umbrellas from providing following form coverage for certain loss exposures (such as Auto, watercraft, and advertising injury). Can be accomplished by stating: insurance does not apply to BI/PD arising out of an auto, this exclusion does not apply to the extent of coverage is provided for the insured by underlying insurance.

Loss exposures better covered by other insurance (D&O exclusion)

-a D&O policy exclusion -commonly exclude claims for bodily injury, property damage, personal injury, advertising injury, and fiduciary liability under ERISA (employee retirement income security act) and similar laws -some also exclude mental anguish and emotional distress, which can be problematic as mental anguish and emotional distress not associated with BI or PD is not covered by the CGL -usually carry a total pollution exclusion -most exclude employment practices except for: small firms, not for profits, and public entities

Loss exposures that are difficult to insure (D&O exclusion)

-a D&O policy exclusion -eliminates coverage for wrongful acts considered to be difficult to insure, require special underwriting, or are uninsurable -Examples include: > fraudulent or dishonest acts of directors and officers > acts resulting in personal profit or advantage to which a director or officer is not legally entitled > violations of the securities act of 1933, the securities exchange act of 1934, or any similar state/federal statute - sometimes only applicable only when they are determined to be fraudulent or dishonest by judgment - many of these cases take a long time or settle before a final judgement, so insurers have changed the wording to include when the director has "in fact" acted fraudulently or dishonestly

Claims covered or reported under prior policies (D&O exclusion)

-a D&O policy exclusion -often contain this exclusion to avoid arguments as to whether a related claim would be covered under the current policy -typical wording excludes claims: "based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any fact, circumstance, or situation that has been the subject of any notice given under any other policy

Directors and Officers Liability insurance

-according to both the CGL (covers personal/advertising injury) and BAP (BI/PD) D&Os are insured individuals -however under those two D&Os are still liable for acts or omissions causing harm that does not qualify as bodily injury, property damage, or personal/advertising injury -also covers the sums that the corporation is required or permitted by law to pay to the D&Os as indemnification -qualified individuals will ordinarily refuse to serve on a BOD unless they are covered by adequate D&O insurance

umbrella layering problems

-aggregate limits may vary with the umbrella and excess layers -the umbrella may be subject to aggregate and products-completed operations limits, while the some of the excess layers may be subject to a basket aggregate limit (which applies to all coverages) -Some excess policies may have no duty to defend, so the insured would be left out to dry should a suit exhaust the underlying layer's limits -whenever excess is to apply for the first umbrella layer, excess layer should follow the the provisions exactly. -to avoid this excess policies include this language: except as otherwise noted by the policy, the insurance shall follow all terms, conditions, definitions, and exclusions of the underlying designated policies.

specific & aggregate excess

-aka stop-loss -commonly used over self-insured WC plans, but can be used for any type of liability -requires that the insured retain a specific dollar amount (SIR)

Definition of a D&O claim

-almost all D&O claims are claims made triggers without exception -claims include these acts: >written demand for monetary or non-monetary relief >a civil proceeding by serving a complaint or similar pleading >criminal proceeding commenced by returning an indictment >a formal administrative or regulatory proceeding commenced by filing a notice of charges, formal investigative order, or similar document -coverage is limited to defense costs as public policy bars insurers from covering criminal penalties -broad definitions suit the insured better with no endorsements and exclusions added

aggregate umbrella limits

-almost all contain limits that operate like limits in the underlying insurance -in some cases the aggregate limit applies to all claims under the umbrella, in others aggregate limits only apply to coverages that are subjected to aggregate limits -can be exhausted before a primary policy's aggregate limit is

A/B umbrella insurance agreement

-alternative to the single broad insuring agreement -Coverage A is excess liability coverage applying over underlying policies -Coverage B is umbrella coverage for claims not covered by underlying but covered by the umbrella. -SIR only applies to coverage B portion -Some use claims made for coverage B which is unfavorable to the insured. -occurrence base makes gaps less likely occurred in B

contractors limitation endorsement

-an endorsement that is usually added to the umbrella liability policy of contractors to restrict coverage for some of the more hazardous exposures to faced by contractors -such as 1)property in the insured's custody, care, or control 2)property being erected, installed, or worked on by the insured 3) liability assumed under contract 4) explosion collapse, and underground hazards

Limitations endorsements (TRIA)

-an endorsement to a commercial form -if the policy holder initially denies certified acts of terror coverage, one option that the insurer may offer the policy holder for property lines if business is to limit the coverage amounts for certified acts of terrorism in return for a reduced premium -use sublimits (limits lower than the limit applicable for other exposures) that apply to each coverage form, coverage part, or policy -These endorsements define certified acts covered by TRIA and provide that non certified acts are subject to the regular policy limits

definition of wrongful act (D&O)

-any error, misstatement, act, omission, neglect or breach of duty actually or allegedly committed or attempted by the D&Os, individually or collectively, in their respective capacities as such, or any matter claimed against them by reason of their status as D&Os -contains a provision stating that all claims from the same or any related wrongful act will be treated as a single claim -meaning that all related claims will be subject to the limit of insurance and the limit does not apply separately for each claim

Purpose of TRIA

-before TRIA insurers would not accept terrorism exposure or would only do so at a price so high the insured's would not pay -TRIA and eventually TRIPRA provided temporary relief from the unpredictable terrorism risk, via federally funded reinsurance programs

Extended reporting periods (D&O)

-commonly called tail coverage, D&O policies often never offer automatic five year coverage tail and never provide the option to purchase unlimited tail -instead most offer a 30-60 day automatic tail and the option to purchase an additional tail of 1-5 years -only should be purchased when the renewal coverage will not cover claims of the expiring policy -It is bilateral meaning either the insured or insurer can use the optional tail coverage if the insurer/insured decides not to renew the policy -Some provide aggregate limits to the tails while others offer lower liability limits during tail coverage -if not limits provided then use the expiring policy's limits as a basis

aggregate and specific excess liability insurance

-commonly used in connection with self-insured worker's compensation plans -designed to apply over the self-insured layer instead of a primary layer of commercial insurance -combinations of both exist providing the benefits of both approaches -with the combination, losses that exceed the aggregate retention would be covered even if they didn't reach the specific limit

drop down coverage

-coverage provided by an umbrella liability policy when underlying aggregate limits are reduced/exhausted -or the underlying insurance does not cover the claim

Coverage C (D&O entity coverage insuring agreement)

-coverage that can be included in a D&O liability policy to make the corporation an insured for claims made against the corporation -without this coverage B would only cover the corp for indemnification of its directors and officers, not covering any loss attributable to the entity's wrongful acts -typically restricted to insuring securities claims -since they share a limit Coverage C can seriously erode limits and leave none for A + B

Umbrella Definitions

-definitions of Bodily injury, personal injury, advertising injury, and property damage -if the umbrella has a narrower definition of personal injury or advertising injury than in the underlying CGL, the umbrella might not provide excess coverage for a large claim that is covered in part under the CGL -if the umbrella's definition for personal injury includes an offense (such as discrimination) that is not included in the underlying policy's coverage, then the umbrella would "drop down" and provide coverage

Ultimate net loss

-depends on the umbrella policy in which it appears and other provisions of that same policy -typically refers to the total amount that the insured is legally obligated to pay as damages for a covered claim -May or not include defense costs -often state the losses exceeding the underlying limit will be covered, and those policies include other provisions that address how defense costs will be treated

Umbrella liability drop down

-drop down over exhausted limits -same applies for any excess policies -if U/l limits are exhausted, the umbrella will drop down and act as if its the primary policy -duty to defend (ends when limits are exhausted) -drop down when no U/L limits apply -an umbrella policy may be broader than the primary policy (not typically true for excess) -There is typically an SIR that is lower than the attachment portion of the Umbrella Policy -First dollar defense coverage applies

Duty of Disclosure (D&O)

-duty of officers to disclose facts that are material to directors -duty of officers to disclose facts that are material to various regulatory bodies -duty of directors to disclose facts that are material to creditors or potential creditors -duty of D&Os to make public disclosures of facts that are material to stockholders, bondholders, and potential investors in the securities of the corporation -also must keep certain matters confidential, including when speaking to outsiders -Directors should not be spokespeople should appoint an officer to do so

umbrella limits

-each insurer writing umbrella coverage sets its own requirements for the types and amounts of underlying insurance an insured must have -additional types of insurance may be required depending on the insured's loss exposures and anticipated coverage to be provided by the umbrella. -an ex of this would be a insurer forcing a company that serves alcohol to purchase liquor liability insurance before being able to get an umbrella policy

Aggregate Limit Endorsements (TRIA)

-endorsements for use with certain commercial liability coverage forms -limit insurer's exposure to certified acts of terrorism and enable the policyholder to obtain limited liability coverage for certified acts for a reduced premium. -only can be offered if the insured denies certified acts of terror coverage -When used with commercial general liability and farm liability the aggregate limit applies to BI, PD, personal/ad injury, and medical payments arising out of certified terror acts -when used with a particular policy is subject to the policy's general aggregate and products/completed operations limit.

Major responsibilities/duties of D&Os

-establishing the corp's basic goals and broad policies -electing or appointing the corporate officers, advising them, approving their actions, and auditing their performance -safeguarding/approving changes in the corporation's assets -approving important financial matters and seeing that proper annual and interim reports are given to stockholders -delegating special powers to others to sign contracts, open bank accounts, sign checks, issue stock, obtain loans, and conduct any activity that may require board approval -maintaining, revising, and enforcing corporate charter and bylaws -perpetuating a competent board by conducting regular elections and filing interim vacancies with qualified persons -fulfilling their fiduciary duties to the corp and its stockholders (fiduciary duty= act with the highest degree of care, for someone else's benefit)

coverage territory umbrella

-important umbrella policy provision -most provide world wide coverage -some however require that the suit be brought into the US or Canada. In many cases the insurer will benefit from settling the foreign claim before it reaches a US or Canadian court. -insureds with liability in space need language like "anywhere" instead of worldwide

Maintenance of underlying insurance umbrella

-important umbrella policy provision -is the insured's agreement to maintain all required underlying coverages in full force and in effect during the policy period, except to the extent that their aggregate limits become reduced by the payment of claims -insured further agrees to notify the insurer promptly if any underlying policy is changed or replaced by another policy issued by another insurer. -if there is no maintenance of the underlying policy the umbrella will not drop down and will only pay the amount that exceeded the underlying limit -a clause is often included that the umbrella's drop down coverage for depleted underlying limits is only for occurrences that appear in the period of the umbrella policy. Should they not be concurrent (failed maintenance), coverage gaps can result.

Sarbanes-Oxley Act of 2002

-in response to corporate scandals congress passed this act in 2002 -adhering to its requirements can be the basis of a sound D&O liability risk control program -only applies to publicly traded companies -complying with it can be costly, but the data generated to ensure compliance can be used for more effective enterprise risk management -may increase loss exposures by setting standards in which to measure a company's performance

Disclosure requirements (TRIA)

-insurers must provide clear and conspicuous disclosure to their policyholders of the premium for coverage for certified acts of terrorism -they must also clearly state the aggregate liability of insurers and the federal government for for damages of certified acts of terrorism may not exceed a 100 billion mandated annual cap. -Insurers must advise their policy holders that if the aggregate cap is met, insurance coverage for acts of terrorism may be reduced.

Coverage B (D&O insuring agreement)

-insures the corporation for the amounts that it is lawfully permitted or required to pay to defend or settle claims against directors or officers -commonly captioned: "Corporate Reimbursement coverage" or "indemnification coverage" -if corp is lawfully able to indemnify then this section is used

Coverage A (D&O insuring agreement)

-insures the individual directors and officers -sometimes called "Individual coverage", "direct coverage", or "Directors and Officers coverage" -applies to covered claims only to the extent that indemnification of the directors and officers by the corporation is not required or permitted

Umbrella occurence

-insuring agreement often requires that the injury be caused by an occurrence, using the CGL definition -with that definition under some policies personal/advertising injuries (slander, libel, and other intentional torts) would not be covered as they are not "accidents" -a solution is to use "caused by occurrence" for BI/PD and "caused by a covered offense" for personal/advertising

Class actions (D&O)

-lawsuit in which on person or a small group represents the interests of an entire class of people in litigation -not limited to D&O claims, products liability is a common area -many of these types are based on wrongful acts related to securities -Commonly makes one of these allegations: 1) corporations public statements (usually either the corp's communications with a security analyst or in its periodic reports to stockholders/SEC) contained material misrepresentations or omissions 2) alleged misrepresentations/omissions actually inflated the stock price 3)while stock price was artificially inflated insiders profitably sold their personal holdings in the corp's stock 4) after the insider sales were complete, the corps stock price dropped sharply when the corp's divulged information inconsistent with the earlier statements that had inflated the price -can be a huge exposure, several settlements have been in excess of 1 billion

Working layers

-layers of coverage in an organization's insurance program most often called on to pay claims -most firms only have one layer in excess of the primary. -it may also have one or more separate excess liability policies providing a second layer coverage above other primary policies that are not covered by the umbrella policy

Reporting of Known wrongful acts (D&O)

-many D&O policies contain this provision that states that if the insured becomes aware of a wrongful act that is reasonably expected to result in a covered claim, the insured may provide written information on the wrongful act to the insurer -if the insurer receives the required information before the policy terminates, then any subsequent claims arising out of that wrongful act will be considered to have been made during that policy period -having the events reported can enable the insured to gain coverage under the prior policy, as they would have been excluded under the old one (due to knowledge of a wrongful act before the policy)

TRIA act requirements

-must be a violent act or an act that is dangerous to human life, property, or infrastructure -must result in damage within the US (including its territories and possessions/Puerto Rico, certain air carriers, or premises of a US mission) -it must be committed by individual(s) in an effort to coerce the US gov, US civilians, or to influence US policy or US gov conduct by coercion. -must result in aggregate property and casualty insurance losses that meet or exceed 5 million

Definition of a D&O loss

-normally define a loss to include defense costs, all damages directors and officers become legally obligated to pay subject to certain endorsements and exclusions -typically excludes: taxes, criminal or civil fines for a penalty, punitive/exemplary damages, or the multiplied portion of any damages -Most-favorable-jurisdiction provisions are important because some states bar or limit coverage for punitive damages and they allow different components of the corp in different states to count as states that they can have litigation in.

Class-Action Fairness Act of 2005

-on February 18th, 2005, the president signed this bill into law -aimed at curtailing what many believed to be abuses of the present legal system regarding class action law suits Provisions Include: -expanded federal jurisdiction over class actions -judicial scrutiny of coupon and other non-cash settlements -judicial report on class action settlements

Umbrella insuring agreement

-one comprehensive insuring agreement instead of several specific ones -common approach is to promise to pay "ultimate net loss" in excess of the "underlying limit" that the insured becomes legally obligated to pay as damages for BI, PD, personal injury, or advertising injury arising out of an occurrence to which the umbrella policy applies -some have broader and additional agreements to cover loss exposures such as employee benefits liability or professional liability -if an insured wants higher limits for other types of liability insurance (such as D&O/employment practices), coverage must usually be arranged under one or more separate excess liability policies covering only that specific type of liability

excess insurance

-policy designed to provide excess limits of coverage above the limits of the underlying coverage -therefore offers no broader protection than that provided by the underlying coverage -for ex may not cover defenses costs

self-contained excess policy

-policy that is subject to its own provisions only and does not depend on the provisions of the underlying policies in determining the scope of its coverage -coverage gaps between excess and the underlying layers may exist because of this -only applies if the loss is also covered under the self-contained excess liability policy

combination excess policy

-policy that may combine the following form and self contained approaches by incorporating the provisions of the underlying policy, then modifying those provisions with additional conditions or exclusions in the excess policy -one type is a policy that provides broad coverage like an umbrella policy, but without any obligation to drop down when the claim is excluded by the primary policy

aggregate excess insurance

-policy that requires the insured to retain a specified amount of loss from the first dollar during a specified period of time (usually one year) -the insurer then pays all loss for that period that exceeds retention, up to the policy limit -also known as "Stop Loss excess liability"

specific excess insurance

-policy that requires the insured to retain a stipulated amount of loss from the first dollar of all losses resulting from a single occurrence -the insurer then pays losses from that occurrence in excess of the retention, up to the policy limit.

More restrictive umbrella exclusions

-pollution exclusion: the CGL does provide limited coverage for BI/PD resulting from pollution, however some umbrella's exclude all pollution claims, whilst others exclude similarly to the CGL. Asbestos is usually an absolute exclusion. To avoid a devastating loss with a total exclusion the insured should: increase employer liability limits to the maximum offered, requesting broad as primary endorsement on the umbrella, requesting that the umbrella modify the pollution exclusion to cover employer liability claims, and requesting the pollution liability insurer delete the employer's liability exclusion from that policy -punitive damage exclusion: may use language such as "only compensatory damages" to exclude. If just "damages" it assumed punitive is include, unless laws block coverage. CGL and BAP do not exclude this -cross liability exclusion: excludes suits between fellow insured. could be a problem when a swimming club considers its members "insureds" and a dispute between two or more occurs

Program Cap (TRIA)

-provision on TRIA Include: -insurer's deductible is 20% of its prior year's direct earned premiums -insurer pays 15% of losses that exceed its deductible -federal government pays 85% of losses after the deductible -annual aggregate program cap of $100 billion applies for insurer and government liability for payments under the program -treasury secretary must develop a process for determining allocation of pro rata shares of insured losses (below the cap) when the 100 billion cap is exceeded -insurance marketplace aggregate retention is 27.5 billion

other acts exclusions endorsements (TRIA)

-purpose of these endorsements is to exclude non-certified acts occurring outside the US -Only used with commercial liability policies, because those coverage insure some exposures outside of TRIA -exclude other acts of terror committed outside the US only when one or more of these situations exist 1) total of all damages (including business interruptions) to all types of property exceeds 25 million 2) fifty or more people sustain serious physical injury or death 3) act of terrorism involves use, release, or escape of nuclear materials or results in nuclear reaction, radiation, or radioactive contamination 4) act of terrorism is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials 5) pathogenic or poisonous biological/chemical material are released if that was the terror act's purpose

D&O loss control

-reduce the liability exposures of the directors and officers -improve the corporations ability to recruit qualified directors and officers -prevent time-consuming, distracting, and potentially embarrassing claims/litigation -enhance the defense of claims and reduce the potential recovery by a claimant -improve the corporation's ability to obtain favorable D&O insurance coverage at a reasonable cost

Duty of Obedience (D&O)

-required to perform their duties according to the statutes and the terms of the corporate charter -directors may be liable if they authorize an act that is either illegal or beyond the powers conferred to the corporation by its charter or by the laws of the state (these acts are called "Ultra Vires" = beyond the strength)

Indemnification of D&Os

-risk of being sued based on participation as a board member is a serious concern and can hinder the corp in acquiring strong talent -Indemnifying for D&Os for the losses they sustain from D&O suits is one way corp's address these concerns -even if the corporation feels like it can win the case, they will often offer a settlement as there is no admission of guilt (other than what the settlement says) and the claim is terminated then instead of a long case -state statutes were created granting D&Os right to indemnification -Most states have enacted business corp legislation modeled either after the Model Business corporation Act or the Delaware business corporation law -model act permits expense indemnification in derivative suits even when the director is liable (Delaware must get court approval) -in most states for indemnification to be allowed have adopted some form of contractual provision that sets guidelines for reimbursement -under some states laws corps can adopt provisions that only deny indemnification when an D&O act or omission constitutes gross negligence or willful misconduct -D&Os want/need advances to cover expenses during the case as indemnification is retroactive -Sarbanes Oxley act of 2002 bars corporations from making loans to D&Os

business judgement rule (D&O)

-rule stating that the conduct of D&Os is not negligence when the alleged acts or omissions were discretionary, performed in good faith, and within the boundaries of prudent business conduct -their actions are in good faith and within the authority/power of the organization -exercised reasonable care in making business decisions -have not been reckless or assumed unnecessary or highly speculative risks

Retroactive date provisions and prior acts coverage (D&O)

-some insurers stipulate that coverage is only for claims after the beginning of the policy, others give a retroactive date, and others give none -with none they cover claims from during the policy period and any occurring before -subject to a warranty that none of the D&Os know any circumstances likely to give rise to a claim -some insurers are willing to limit the warranty of no known or expected claims to the insured knowledge to the date of the original application

Umbrella Defense coverage

-some provide defense coverage in addition to their limits, while others provide it only within their limits -umbrella insurer not obligated to defend unless: underlying policy limits have been paid and underlying insurer's duty to defend has ended AND underlying policy does not cover a claim and the umbrella policy is required to drop down coverage -problems can arise from the underlying insurer getting approval to withdraw from the case should the Umbrella take over the duty to defend

Occurrence/claims made triggers umbrella

-some umbrellas contain a trigger different than most occurrence and claims made triggers found in primary policies. -trigger for BI/PD based on when the wrongful act takes place, rather when the injury or damage occurs (ex when a defective product is manufactured, rather when it hurts someone) -Gaps in coverage can result when the umbrella has a different coverage trigger than the underlying -to avoid this some insurers provide policies that provide both CM and O triggers -when both policies contain a CM trigger, insured ordinarily tries to obtain the same retroactive date and extended reporting options for both, may be difficult as a CGL is far more generous in this respect than umbrella policies are.

Derivative Suit (D&O)

-suit brought by one or more stockholders on behalf of the corporation with any resulting damages recovered going directly to the corporation, not the stockholder(s) -however successful plaintiffs are often awarded the expenses incurred in bringing the suit, including a reasonable, but often substantial amount for attorney fees -to be successful a plaintiff-stockholders must normally establish that the defendants conduct was outside permissible boundaries of sound management practices, including the business judgment rule

Non-derivative suit (D&O)

-suits against the D&Os are not made in the name of the corporation -suits may be initiated by customers, competitors, creditors, employees, governmental entities, or other persons outside of the corporation -Stockholders who suffer harm also may bring this type of suit in their own name -Plaintiff must show that the injustice or injury resulted from wrongful acts or omissions of D&Os.

Coverage B insureds (D&O)

-the entities insured for this coverage are the insured corporation or corporations named in the declarations -depending on the policy it may automatically extended to unnamed subsidiaries of the named insured -often provide automatic coverage for new mergers or acquisitions, however if it involves an increase of assets, as low as even 10%, the named insured may be required to notify the insurer and pay an additional premium

Make available provision (TRIA)

-this provision requires insurers to offer coverage for certified acts of terrorism on the same terms that the insurer offers non-terrorism coverage -this means that the insurer is required to to offer a policy without a terrorist specific exclusion or limitation -most offer the coverage at the time of the initial offer, purchase, and renewal of insurance

Certified acts of terrorism

-to qualify for TRIA must be a certified act of terrorism -an act of terrorism must be certified by the Secretary of the Treasury, in concurrence with the Secretary of State and US Attorney General -the treasury secretary cannot delegate this responsibility to any other party -in 2007 the extension added domestic terrorism in addition to foreign. -except for worker's compensation coverage, an act of war can not be certified if it is committed in connection with a war congress has declared. -does not require insurers offer coverage for NBCR (nuclear, biological, chemical, or radiological) due to the unpredictable long term effects

Omitted underlying policy exclusions

-two groups: Exclusions omitted as unneeded and exclusions omitted to broaden coverage 1) since umbrellas ordinarily cover CGL, business auto, and employer liability loss exposures under a single form, many provisions are unnecessary including -employer's liability exclusion in BAP and CGL -exclusions of operations and completed operations in the BAP -CGL exclusion regarding transportation of mobile equipment 2) insurers remove exclusions to provide a broader coverage -CGL liquor liability exclusion -employer's liability of accidents occurring outside of the US/Canada -employer liability exclusion of injury of a person subject to the federal employer's liability act, jones act, and similar laws permitting employees to sue their employers -employers liability exclusion of injury to persons knowingly employed in violation of the law

umbrella insurance

-type of excess policy that provides additional limits of insurance and covers certain types of losses not covered by the underlying coverages. -most provide defense coverages -additional coverages subject o the insured's assumption of a self insured retention or retained limit

CGL exclusions that Umbrella shares

-umbrella contains exclusions that are identical or very similar to these -expected or intended injury -worker's compensation and similar laws -war -damage to your product -damage to your work -damage to impaired property or property not physically injured -recall of products, work, or impaired property -broad form nuclear energy liability

Excess V Umbrella

-umbrella may provide broader coverage than primary policies, with an self insured retention. -excess does not cover anything additional that the primary policy does not. For ex. excess may not pay defense -what insurer calls excess may be umbrella for others & vice versa. -do not use standardized policies

self insured retention (SIR)

-under an umbrella policy, an amount of loss that must be retained by the insured when the umbrella policy drops down to cover a claim that is not covered at all by an underlying policy -normally does not apply when the umbrella is paying in excess of a claim covered by the primary policy or dropping down to pay a claim because of the primary's policy's aggregate limit has been exhausted

Umbrella exclusions

-using some underlying policy exclusions with little or no change -omitting certain exclusions found in primary policies -using less restrictive versions of some underlying policy exclusions -using more restrictive exclusions than those in the underlaying policy -underwriters can also add exclusions by endorsement to their policy forms

why umbrella insurance is needed?

-when there is difficulty in estimating the MPL (maximum possible loss) for liability loss exposures -to layer liability coverages -to combat the effects of aggregate limits.

Umbrella exclusions are less restrictive

-willing to provide coverage for a particular loss exposure without covering it entirely -instead of omitting the exclusion, the insurer instead uses a less restrictive version that is similar to the underlying policy's exclusion -ex would be instead of excluding all damage to property in insured's custody and control, only exclude damage to property in the custody that the insured was contractually obligated to have insured.

D&O exposures

These exposures include: -corporations and the role of their directors and officers -major responsibilities and duties of directors and officers -types of suits made against D&Os -indemnification of director and officers by the corporation they serve (Directors are elected by shareholders, but they can also be shareholders themselves) (Directors elect executive officers) -SEC can also choose to investigate D&Os for fraud