Transcript 9/19/2013 - Insurance - RIMS Massachusetts Chapter

RIMS MASSACHUSETTS CHAPTER MEETING
Thursday, September 19, 2013
7:30 a.m. – 10:00 a.m.
WHAT EVERY INSURANCE
PROFESSIONAL NEEDS TO
KNOW ABOUT INSURANCE
Presenter:
John G. Nevius, Esq., P.E.
(212) 278-1508
[email protected]
Disclaimer
The views expressed by the participants
in this program are not those of the
participants’ employers, their clients, or
any other organization. The opinions
expressed do not constitute legal
advice, or risk management advice.
The views discussed are for educational
purposes only, and provided only for
use during this session.
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Insurance?
• Insurance is an attempt to transfer
some or all of risk(s)
• Insurance contract is supposed to set
the terms, conditions and duties of the
parties (policyholder/insurance
company) in this transfer
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The Intent
“The primary duty of the [insurance
company] claim representative is to deliver
the promise to pay. Therefore, the
[insurance company] claim representative’s
chief task is to seek and find coverage, not
to seek and find coverage controversies or
to deny or dispute claims.”
James J. Markham, et al., The Claims
Environment, 13 (1st ed. 1993).
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The Seven Digit Exclusion
• Why?
• Insurance company business model
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Better than Free Money- “Float”
FLOAT!!
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Better than free Money- “Float”
(continued)
Property–casualty (“P/C”) insurers receive
premiums upfront and play claims later. . .
This collect-now, pay-later model leaves
us holding large sums-money we call
“float”- that will eventually go to others.
Meanwhile, we get to invest this float for
Berkshire’s benefit. . .
Warren E. Buffet, Chairman of the Board, Berkshire Hathaway, February 25, 2012.
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Better than free Money- “Float”
(continued)
If our premiums exceed the total of our
expenses and eventual losses, we
register an underwriting profit that adds to
the investment income our float produces.
When such a profit occurs, we enjoy the
use of free money – and, better, yet, get
paid for holding it.
Warren E. Buffet, Chairman of the Board, Berkshire Hathaway, February 25, 2012.
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Observations from Policyholder Trial
Lawyers About The Purchase of
Insurance Policies
Buying Insurance Policies
• Named Insured – make sure you have coverage for the entities
you intend at claim time
• Exclusions (asbestos; professional services; intentional acts/fraud;
contractual liability; pollution; punitive damages)
• Endorsements
• Dispute resolution provision; Choice of law
• Defense costs outside of policy limits?
• Misrepresentation in application -- rescission
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Observations from Policyholder
Trial Lawyers About The Purchase of
Insurance Policies
Tips:
•
•
•
•
All communications about insurance in writing
Responsible individual review
Read the policy
Use excellent brokers and consultants
effectively
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Observations from Policyholder
Trial Lawyers About The Purchase of
Insurance Policies
• Renewals can be a surprise
• Beware of new or different
endorsements
• Most jurisdictions require insurer to
notify policyholder of any material
reduction in coverage on renewal
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The Claims Process
• Notice (Occurrence, Claim, Suit, Circumstance)
– Property Policies: POL; Suit Limitation Clauses
• Gather/review potentially applicable policies
– Insurance archaeology
– Additional Insured Coverage (other insurance)
• Cooperation Clause
– Investigation; defense; settlement
– Comply with all reasonable requests
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The Claims Process
• The Policyholder’s Arsenal
– Demand specificity in reservation of rights
– Duty of Prompt Investigation
• Set reasonable deadlines and keep the
pressure on
– Ambiguity
– Policyholder's Reasonable Expectations
– Broad Duty to Defend
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DO NOT TAKE “NO”
FOR AN ANSWER
• Denial by Insurer is no reason to give up
• Litigation may be necessary
– Insurance Company may initiate DJ Action
• Monroe Guaranty Ins. Co. v. Magwerks
Corp., 829 N.E.2d 968 (Ind. 2005).
– Insurance Company may have to protect
itself to avoid bad faith for not stepping up.
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Insurance Recovery Litigation
Have you Been Sued in a Declaratory Judgment
Action?
Standstill Agreements
Confidentiality Agreements
Arbitration?
•
•
Enforceable?
Scope
Forum Selection
•
•
Outcome determinative issues?
Strategy
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Insurance Recovery Litigation
Tips:
•
•
•
•
The Best Defense is a Good Offense
Consider the relationships
Cost and time of litigation
What are the extra-contractual sources of recovery?
•
•
•
•
Consequential damages
Breach of duty of good faith
Torts
Attorneys’ Fees
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Insurance Recovery
Settlement Process
• Two Tracks Better than
One
• Confidentiality provisions
• What is the scope of the
exchange?
•
$ amount is one term of
many
•
Avoid “Buybacks” and
Indemnity
•
Subrogation rights
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Insurance Recovery
Settlement Process
• Exhaustion of Underlying Policies
Zeig (2d Cir. 1928) – Judge Augustus Hand pick up where liability reaches
level of excess*
Commerica (E.D. Mich. 2007)
Maximus (E.D. Va. 2012)
Goodyear (N.D. Ohio 2011)
HLTH (Del. Super. 2008)
Qualcomm (Cal. Ct. App. 2008)
The Mills Ltd. (Del. Super. 2010)
J.P. Morgan Chase (N.Y. App. Div. June 12, 2012)*
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Insurance Recovery
Settlement Process
Coverage Tower
2nd Excess - $10 million
1st Excess - $10 million
Umbrella - $5 million
Primary - $5 million
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Exhaustion
TRADITIONAL RULE APPLIED TO
EXAMPLE
Coverage for $25 mm settlement
$20 mm
Excess Pays $20 mm
$10 mm
$5 mm
$4 mm
0
$1 mm GAP
Primary Pays $4 mm
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Exhaustion
INSURANCE COMPANY EXTREME
ARGUMENT APPLIED TO THE EXAMPLE
Coverage for $25 mm settlement
$20 mm
Policyholder Pays
$21 mm
$10 mm
$5 mm
$4 mm
Primary Pays $4 mm
0
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Exhaustion
Tips:
• Work with broker or insurance
professional to lessen possibility of
this extreme argument
• Avoid exhaustion provisions that
require actual payment by
underlying insurance companies of
all underlying policy limits
• Clarifying endorsement
• Try to obtain consent to settle
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Recent Developments
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“Climate Claims Are the New Asbestos”
National Underwriter (May 29, 2009)
Or Are They Just Another Millennium Bug…?
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Suits Claiming
Nuisance/Seeking Damages
Native Village of Kivalina v. ExxonMobil, et al.,
N.D. Cal. (February 2008).
• Native Village in Alaska brought a nuisance suit
against 24 self-identified major oil companies
seeking relocation costs and damages regarding
fisheries.
• Plaintiffs seek joint and several liability for nuisance
and civil conspiracy, and seek monetary damages
and declaratory judgment for past and future
damage caused by global warming.
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Suits Claiming
Nuisance/Seeking Damages
• On September 30, 2009, Federal nuisance
dismissed – state law claims?
• Dismissal based upon the attenuated
nature of the causal link between the
claimed injuries and any particular
defendants’ conduct, and on the basis that
the regulation of greenhouse gas emissions
was an issue best left to the political
branches of government.
• Appeal to 9th Cir. unsuccessful
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O.K., But Is There
Coverage?
Steadfast Ins. Co. v. AES
Related Declaratory Judgment Coverage
Case pending in VA state court
– Summary Judgment on Occurrence for
insurance interests – but is it?
– Is there a duty to defend?
•
•
City of Chesapeake…
Is a disinfectant an added pollutant?
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SEC Disclosure Guidelines
• No specific regulations for climate change disclosures,
but some general requirements in place for impacts
to/from the environment
• SEC provides guidance on climate change disclosure
requirements in relation to existing regulations in
February 2010
• Companies should consider and disclose:
–
–
–
–
Impact of Legislation and Regulation
Impact of International Accords
Indirect Consequences of Regulation or Business Trends
Physical Impacts of Climate Change
• New guidance “may” have D&O implications
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Coverage For Directors & Officers
• D&O Environmental Pollution Exclusion
– May apply depending on allegations of the
claim and relation to environmental
pollution.
– Actions incidental to pollution – allegedly
misleading statements – re: a decline in
share price from environmental pollution –
less likely to trigger.
– “Best Practices”: enhance D&O coverage
to include “environmental mismanagement
claims.”
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Thank You
John G. Nevius, Esq., P.E.
(212) 278-1508
[email protected]