Transcript Slide 1

Because it has always been a matter of trust…
RMC 2010 Chicago
Telcom Insurance Group
Get Blown Away by Our Educational Programs
Insurance Topics
Presented by:
Peter J. Elliott, CPCU
President and CEO
Because it has always been a matter of trust…
RMC 2010 Chicago
Topics to be Covered
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What is Underwriting?
“TeleTracker” Audits
Business Income and Extra Expense
Network Security/Data Liability
Telcom Errors and Omissions Exposure
Executive Liability
Because it has always been a matter of trust…
What is Underwriting?
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To subscribe or agree to, as by signature
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To agree to pay for the cost of or pledge to cover the financial
losses of (an undertaking, etc.) Insurance
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To write one's signature at the end of (an insurance policy), thus
assuming liability in the event of specified loss or damage
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To assume liability to the amount of (a specified sum)
Because it has always been a matter of trust…
What is Underwriting?
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The history of the title and the role of the position realistically
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Exposure analysis versus data collection: What is the difference?
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Example alarm installation
Because it has always been a matter of trust…
Teletracker- Underwriters & Insureds Risk Analysis Tool
Purpose: to review liability and business income exposures of
a communications company that could in the event of a severe loss
if not understood and addressed could lead to financial ruin.
Catastrophic losses do not occur often but when one does without
proper protection a business could be bankrupt- so the goal is to
eliminate surprises when a loss occurs and the consequences were
not played out.
Because it has always been a matter of trust…
Teletracker- Underwriters & Insureds Risk Analysis Tool
“Cat” protection is not a new concept many insureds purchase umbrella
policies to protect against a catastrophic loss. It adds
an extra limits layer over what was once known as general liability.
The problem is liability is no longer simple and general.
Can property losses be catastrophic? Of course they can
but we don’t fear them like liability exposures- why? Is it a
lack of understanding of the topic? Direct or indirect losses can
wipe out a business.
Because it has always been a matter of trust…
TeleTracker- Common Themes
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Lack of NSDL and Tons of Sensitive Data in Hand
Lacking adequate BI/EE limits and understanding
Contractual nightmares
Equipment that cannot easily be replaced
Lack of a catastrophe plan
Informal Procedures that deserve formalization
Unintentional discrimination against customers
Few employees with knowledge of a process and no written trail
Large EFT happening
Service partnerships with third parties
Because it has always been a matter of trust…
Catastrophic Property Protection = Business Income
Finding it is a case made for Magnum BI…
Though no one can go back and make a brand new start, anyone can
start from this point in time and make a brand new ending.
Because it has always been a matter of trust…
Basic Concept
Defining a Catastrophe
1. the final event of the dramatic action, especially of a tragedy
2. a momentous tragic event ranging from extreme misfortune to
utter overthrow or ruin
3. a violent and sudden change in a feature of the earth or a violent
usually destructive natural event
Because it has always been a matter of trust…
Basic Concept
We can all agree a catastrophe can strike property and impact a business by
destroying the physical assets it owns. This is defined as a direct loss.
Because it has always been a matter of trust…
Basic Concept
If your office building with COE is destroyed in a catastrophe what
happens to your revenue, customer base, and your ability to transact
business? You need to define indirect loss, business interruption, and time
element exposure.
Because it has always been a matter of trust…
Basic Concept
In order to have a Business Income loss (indirect damage or time element
loss) there must be direct physical damage to the described property which
impairs the operations and causes an income loss even if the business is
unprofitable.
Because it has always been a matter of trust…
Basic Concept
In an attempt to demystify Business Income coverage think of what
disability insurance does for someone personally and relate that to what
would happen to a business if they suffered damages/injuries that
interrupted their flow of income.
Fact: 75% of businesses that suffer major property damage are out of
business in 3 years.
Because it has always been a matter of trust…
Basic Concept
Coverage pays for actual lost income and lost future sales while the
business is rebuilding or putting the pieces back together.
Fact: Future income loss can be substantiated by use of sales forecasts with
historical support, specifics on lost contracts, and expected sales.
Because it has always been a matter of trust…
Basic Concept
The second coverage part of most indirect loss polices is Extra Expense.
This coverage grant is intended to cover additional costs a business
incurred due to the property damage that they normally would not have
endured.
Because it has always been a matter of trust…
Concepts- Claim Example Fire
A wildfire destroys a community and the telephone equipment located in it.
Most of the telco property was equipment on loan to customers. The
customers HO Policy would replace the damaged equipment. What about
indirect loss? The policy had 2 potential coverage locations: Undescribed
Premises and Dependent Properties which could apply. Total property in
customer homes valued at $24K. The loss of income is valued at $85K.
Because it has always been a matter of trust…
Concepts- Claim Example Fire
Issues:
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Direct Damage to Scheduled Insured Property
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Period of Recovery if Homes are Not Rebuilt (Resort Area)
Because it has always been a matter of trust…
Concepts- Claim Examples Hurricane
Property located in a tier one coastal zone and had to be insured in a
surplus property market. The policy contained a 5% wind deductible. This
retention was greater than the direct loss amount but it triggered BI/EE.
The BI loss was $325K ($295K Customer Credits and $31K Lost Revenue)
and there was $120K in EE (Overtime, Generators and Fuel).
Because it has always been a matter of trust…
Concepts- Claim Example Hurricane
Issues:
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Direct Damage or Payment Required to Trigger BI/EE
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Customer Credits Voluntary or Mandatory
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Confusing Extra Expense with Expediting Expense (would not have
had versus reduction of loss)
Because it has always been a matter of trust…
Concepts- Claim Example Hurricane 2
Poles and lines damage from the hurricane. Policy limit was $100K for both
direct and indirect exposure. The limit was exceeded. Since some of the
equipment damaged was on leased space on poles of others, when the
poles and lines limit was exhausted, the utility services indirect limit was
available for the claim. The total claim amount was $137K.
Because it has always been a matter of trust…
Concepts- Claim Example Hurricane 2
Issues:
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Sub-limits in a policy
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Direct loss being covered but not indirect damage
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No utility service coverage or scheduled location
Because it has always been a matter of trust…
Concepts- Claim Example Ice Storm
An ice storm knocked out electricity and the telco was unable to provide
service to some of their customers despite the use of generators. They
incurred a $35K loss ($20K EE and $15K BI for customer credits)
Because it has always been a matter of trust…
Concepts- Claim Example Ice Storm
Issues:
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Mandatory or voluntary customer credits
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Utility Services Direct and Indirect loss
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Extra Expense versus Expediting Expense
Because it has always been a matter of trust…
Coverage
Business Income defined to be net profit or loss and continuing normal
operating expenses.
Determined by sales - cost of sales = lost revenue
One expert states, for service based businesses, that 12%-15% of revenues
if ordinary payroll is included, should be used for BI/EE limits.
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Common Pitfalls to Coverage Limit:
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Market changes for your products and service
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Impact of the countries economic condition
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Newly introduced products or services
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Business Income Limits can be:
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Per Occurrence or capped as part of an Aggregate
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Agreed Amount or Specified Dollar Subject to Coinsurance or Actual
Loss Sustained
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Have a Maximum Period of Indemnity 120 Days or a Monthly Period
of Indemnity
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Business Income Retention beyond coinsurance if not waived can be:
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a Dollar Deductible; or
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the policy may have a Time Waiting Period
Is the time deductible business hours only or does anytime meet the
requirements of the deductible?
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Ordinary Payroll inclusion or exclusion creates confusion. It is defined in
the policy as everyone below department manager status. When ordinary
payroll is excluded and the operation is unable to operate no payroll
reimbursement would be granted for anyone lower in the operation than a
department manager. Either self-funding the income, or firing all these
employees can be a big problem.
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Law and Ordinance if not on the property direct loss form will not trigger
indirect coverage. There have been cases where the required ordinance
upgrade created a delay in recovery time and therefore lost income.
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Civil Authority protection should be checked because in the event that
damages to an adjacent property occurs some forms with this coverage
grant will respond as if the location with the damage is scheduled on the
policy.
Examples- Hurricane evacuations or closing of Ronald Reagan Airport
after 9/11 Attacks.
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Extended Period of Recovery protects a business after the damage is
repaired for an agreed amount of time. This extension compensates the
insured for lost customers that did not return when operations began again.
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Loss Settlement Fees do you have a limit for this? With all the financial
analysis required to determine actual lost profit and especially lost future
profits an expert in this area of coverage can be valuable and your policy
may even pay for the cost!
$25K limit
Because it has always been a matter of trust…
Coverage Terms, Conditions, and Options
Loss Payment Clause read this carefully or make sure your agent does.
Many state that it will pay 30 days after a settlement is agreed upon and not
30 days after the claim is submitted. Your agent can also seek partial
payments in the event that there is some level of agreement despite the fact
that the amount is in dispute.
Because it has always been a matter of trust…
Management and Analysis Tools
Only through preparation can the BI/EE exposure of a business be
protected. The end goal of risk management and a sound business
resumptions plan is their minimization of the risk of being put out-ofbusiness because your BI/EE coverage was not properly valued or
accurately protected with the right coverage.
Because it has always been a matter of trust…
Management and Analysis Tools
Business Resumption Plans are not all that needs to be explored because
they will miss other business income and extra expense exposures that only
a risk audit can catch.
Examples- contracts, equipment, geographic location and network
redundancy could all be factors that impact coverage and value
requirements.
Because it has always been a matter of trust…
Management and Analysis Tools
Once you have a resumption plan and your risk audit is complete you can
use a few tools to work on the valuation piece:
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Financial Statements
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Business Income Worksheets
Because it has always been a matter of trust…
Management and Analysis Tools
Business Income/Extra Expense Worksheet Example:
ADDITIONAL EXPENSES AT
PREMISES
Expense of Moving Equipment
to and from Former Premises
1st Month
2nd Month
3rd Month
Additional
Months
TOTAL
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Insurance Expenses
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Labor, Altering and Equipping
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Light, Power, Heat
$
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Rent
$
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Transportation Costs
$
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Advertising/Postage Expense
$
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Because it has always been a matter of trust…
Management and Analysis Tools
Still the single best tool available to any management team when it comes
to dealing with a catastrophe is--preparedness!
Because it has always been a matter of trust…
Network Security and Data Security Liability
Is created by a breach. So, what is a breach?
Personal information that is an a format that can be easily read and used by
a third party is stolen and personal information is in unauthorized hands!
Because it has always been a matter of trust…
Network Security and Data Security Liability
Breaches in Telecommunications type businesses:
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Apple I-Pad Communications- 6/2010 password of 100,000 customers
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T-Mobile- 7/2009 unauthorized access to records including social
security numbers
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AT&T - 6/2009 employee of service provider improperly removed
paper files containing customer data- considered theft.
Because it has always been a matter of trust…
Network Security and Data Security Liability
State AG
Business
Breach
Customer
Flow of a breach and parties involved.
FTC/FCC
Industry
Because it has always been a matter of trust…
Network Security and Data Security Liability
Insurance Protection is available for risk transfer in a few different formats:
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General Liability coverage extensions
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Monoline NSDL policies
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As part of an Errors and Omissions Policy
Because it has always been a matter of trust…
Network Security and Data Security Liability
Insurance Protection varies but a few of the common coverages that are
offered include:
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Indemnification of 3rd party claims for damages
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Expense Reimbursement to clean-up your system
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Expense Reimbursement for required corrective actions to assist
victims
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Regulatory fine reimbursement
Because it has always been a matter of trust…
Network Security and Data Security Liability
Insurance Protection varies but a few of the common coverages that are
offered include:
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Public relations expenses
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Media and Communications liability
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Errors and Omissions (more on this later)
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First party property coverage direct and indirect loss
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Extortion
Because it has always been a matter of trust…
Network Security and Data Security Liability
Insurance Protection the common format:
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Claims-made and reported policy form
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Defense inside the limit
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Duty to defend
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Shared limits
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Retentions only and no coinsurance
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Claim specialist services
Because it has always been a matter of trust…
Network Security and Data Security Liability
Insuring Agreement:
We will pay for “loss” that the “insured” becomes legally obligated to pay,
and “defense expenses”, as a result of a “claim” first made against the
“insured” during the “policy period” or during the applicable Extended
Reporting Period for a “wrongful act” or a series of “interrelated wrongful
acts” taking place on or after the Retroactive Date, if any, shown in the
Declarations, and before the end of the “policy period”.
Because it has always been a matter of trust…
Network Security and Data Security Liability
Coverage Trigger:
“E-commerce incident” means a:
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“Virus”;
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Malicious instruction; or
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Denial of service attack;
Introduced into or enacted upon your “computer system” (including “electronic data”) or
a network to which it is connected, that is designed to damage, destroy, delete, corrupt or
prevent the use of or access to any part of the system or otherwise disrupt its normal
operation.
Because it has always been a matter of trust…
Network Security and Data Security Liability
A Common Exclusion:
Based upon, attributable to or arising out of any action by a governmental
or quasi-governmental authority or agency including, but not limited to,
regulatory actions brought against you on behalf of the Federal Trade
Commission, Federal Communications Commission, or other regulatory
agency. However, this exclusion shall not apply to the actions brought by
governmental authority acting solely in its capacity as a customer of the
“named insured” or one of its “subsidiaries”.
Because it has always been a matter of trust…
Network Security and Data Security Liability
What if a third party we use, like a billing entity, has a breach?
“Employee” means:
a. Permanent, temporary or leased employees;
b. Officers;
c. Volunteer workers;
d. Partners; and
e. Members (if a limited liability company);
of the “named insured” and those of any organization qualifying as a “subsidiary” under
the terms of this policy, but only while acting within the scope of their duties as
determined by the “named insured” or such “subsidiary”.
What about in the entity named insured section?
Because it has always been a matter of trust…
Network Security and Data Security Liability
What if a third party we use, like a billing entity, has a breach?
“Named insured” means the entity or entities shown in the Declarations
and any “subsidiary”.
“Subsidiary” means any organization in which more that 50% of the
outstanding securities or voting rights representing the present right to vote
for the election of directors, or equivalent position, is owned, in any
combination, by one or more “named insured”.
Independent contractors need to be added by endorsement.
Because it has always been a matter of trust…
Network Security and Data Security Liability
Regardless of who causes it there still has to be liability…
With respect to Insuring Agreement B – Network Security Liability, “wrongful act” means
any actual or alleged neglect, breach of duty or omission by an “insured” that results in the
unauthorized access to the “insured’s” “computer system” by a non-”insured” and such
access results in:
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The unauthorized publication by a non-”insured” of an “insured’s” client’s “personal
information” which was held within the “insured’s” “computer system”; or
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An “insured’s” “computer system” transmitting, by e-mail or other means, a “virus”
to a third party
Because it has always been a matter of trust…
Errors and Omissions
What are typical E&O drivers of allegations…
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Universally agreed upon and defined professional activities
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Certification or education that the general public does not possess
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Financial harm driven by advice or counseling
Because it has always been a matter of trust…
Errors and Omissions
Insuring Agreement:
We will pay for “loss” that the “insured” becomes legally obligated to pay,
and “defense expenses”, as a result of a “claim” first made against the
“insured” during the “policy period” or during the applicable Extended
Reporting Period for a “wrongful act” or a series of “interrelated wrongful
acts” taking place on or after the Retroactive Date, if any, shown in the
Declarations, and before the end of the “policy period”.
Because it has always been a matter of trust…
Errors and Omission
Covered Activities:
“Telecommunications Services” means the following services provided by you:
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2.
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analysis, design, integration, wiring, or cabling of telecommunications systems or
networks;
designing, developing, programming, installing, servicing, integrating, supporting,
maintaining, or repairing telecommunications software or hardware;
education and training in the use of telecommunications hardware or software;
Because it has always been a matter of trust…
Errors and Omission
Covered Activities:
4. telephone services, switching services, dial tone access, 911 emergency services,
reseller services, interconnection services, long distance services, facsimile and
interactive facsimile services;
5. cellular and wireless communication services including paging services and groundbased satellite communications;
6. call center services;
7. cable television services;
8. telecommunications information and consulting services;
9. internet services, including services as an internet provider, application service
provider, web site host, web page designer or developer, or a domain
name registrar.
Because it has always been a matter of trust…
Errors and Omission
Covered products…yes, E&O policies often throw in products:
Telecommunications Product means the following products developed,
distributed, manufactured, sold, leased or licensed by you:
1. hardware, including products, components and peripherals;
2. software, firmware and data;
3. electronic, telecommunications and wireless equipment
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Trend Update:
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Increased financial pressures from the economy
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Increased regulatory oversight and pressures
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EPLI issues
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Wage and Hour Laws
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Background Checks and Discrimination Allegations
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Layoffs
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Trend Related Issues:
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Family-owned businesses disagreeing and not working it out
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Wellness care allegations being brought against directors
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Ex-employees not being able to secure new employment and needing
financial assistance and getting desperate
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Conflicting issue-need for higher limits and the inability to justify in
bad economic times
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Common Sources of Claims D&O:
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Merger and Acquisitions
Financial Performance
Executive Compensation
Conflicts of Interest
Inadequate Disclosure
Faulty Financial Reporting
Deceptive Trade Practices
Contract Disputes
Restraint of Trade
Dishonesty
Anti-Trust
Tax Issues
Regulatory Problems
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Coverage Trends and Issues:
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Movement towards separate limits for coverages
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Insured versus insured exclusion problems for family businesses
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Non-rescinable coverage offerings
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Hammer clause softening
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Quick Refresher D&O:
Three Major Coverage Parts
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Director and Officer and Entity Coverage
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Fiduciary Liability
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Employment Practices Liability Insurance
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Quick Refresher D&O:
Director and Officer and Entity Coverage
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Coverage A- Protects Directors that are not indemnified by the Entity
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Coverage B- Covers the Entities obligation to indemnify the Directors
and Officers via by-laws or state law
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Entity Coverage- Protects the entity itself
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Quick Refresher EPLI:
Protection against claims from employees•
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Wrongful dismissal
Violation of Employment Laws
Sexual and Workplace Harassment
Discrimination
Failure to Employ or Promote
Wrongful Discipline
Failure to Grant Tenure
Negligent Evaluations
Failure to provide Adequate Work Conditions
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Quick Refresher Fiduciary Liability:
With the enactment of the Employee Retirement Income Security Act
(ERISA) in 1974, fiduciaries assumed new responsibilities relating to the
management and administration of employee benefit plans.
Because it has always been a matter of trust…
Directors and Officers aka Executive Liability
Quick Refresher Fiduciary Liability:
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ERISA defines a fiduciary as…any person exercising any discretionary
authority or control of the management or administration of a
retirement plan or assets.
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Wrongful Act…any violation of responsibility or duty as defined by
ERISA.
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Coverage protects the plan sponsor, the plan itself and any
administrator of it for wrongful acts.
Because it has always been a matter of trust…
Questions and Answers
What have we covered today?
The main lesson we hope you learned is that catastrophe protection and
planning is critical for businesses of all sizes if they hope to continue after
a disaster, either of the natural or human kind, strikes them.
Because it has always been a matter of trust…
Thank you for attending this workshop!
Please visit it with us again soon!
Peter Elliott, CPCU
800.222.4664 Ext. 1086
[email protected] www.telcominsgrp.com