Current Events: Sexual Abuse/Molestation

The Children’s Bureau, a division of the US Department of Health and Human Services, reports that for the period from October 1, 2009 through September 30, 2010, there were 436,321 substantiated cases of child abuse and/or neglect. Of that number approximately 25% were categorized as physical or sexual abuse. That’s based on reported cases and does not contemplate incidents that were unreported. While any system attempting to codify child abuse is flawed for a variety of reasons, the number of abuse cases is staggering and has not gone unnoticed by law firms and others.

Recently one of the National Underwriter sites posted a column regarding the Penn State sexual abuse scandal and which insurance coverage(s) may or may not apply.  It appears the author is starting with the GL policy and will at some point address D&O and possibly EPL issues. http://www.propertycasualty360.com/2012/04/26/penn-state-vs-insurer-who-will-cover-sex-abuse-co

I have no idea what the insurance package for PSU includes, but I would certainly hope they have separate coverage or at least an additional coverage part that specifically addresses sexual abuse/molestation. I would expect to find that in an EPL policy written for the school. I’m guessing if they didn’t have that coverage in place previously they have it now, albeit at a greatly increased premium.

This particular scenario and the fact that it’s gained national attention is probably not something your client’s think can or will happen to them, but it doesn’t have to be a national scandal to ruin your customer’s business. All you need is a little local press concerning the alleged improper/illegal conduct of a private school, daycare center, assisted living facility or any of a hundred other possible entities who have responsibility for the safe keeping of others. Add to that the cost of defending the allegations and even if they’re exonerated they may not be able to recover their lost revenue.

In this day and age, it would seem that offering your client coverage for sexual abuse and molestation would automatically be on the checklist of things “to do”, even if it’s only a sub limit if that’s all you can find. For some classes and types of risks, I’ll admit it’s not an easy write and can be expensive, but if you don’t pursue it your client may end up paying costs out of pocket, and you may be filing an E&O claim. Neither situation is desirable.

Penn State will obviously live on, and it should, as the actions or lack thereof from a few people should not destroy an institution for all time. Your customers probably don’t have the staying power and resources of a major university, so at the very least they need a fighting chance to survive what could be a very damaging series of events.

EPLI: Illegal Alien Investigative Proceedings…

If this photo conjures up a smile or a memory or two, you're welcome. If it means nothing at all, ask an “experienced” member of your agency. Or your parents...

This is a short post to make you aware of a unique coverage that may be available to your client as part of an EPL policy...

Illegal Alien Investigative Proceeding Coverage. OK, I'm having a little fun with the photo, but I'm not kidding about the coverage, it really does exist. I know of only a few carriers that offer this right now, and for those carriers this coverage is added by endorsement. The policy wording is amended to show that a "claim" includes a criminal investigation by a governmental agency based on the allegation that the insured hired illegal aliens.

Note that the amendment is for the investigation, not for fines, penalties or anything else, so the carrier is going to pay for legal expense in connection to an investigation involving the insured entity. Be careful here - know whether or not the wording covers the insured, the insured entity or both. The form I've reviewed specifically says insured entity. Also be aware of the limits - usually this is going to be fairly low limits ($25K or $50K) and those limits are part of and not in addition to the policy limits.

Obviously if your client knowingly hires or "harbors" illegal aliens, it's, well, illegal. That could have an impact on how the carrier looks at other coverage provided, and probably will have an impact on whether they renew the policy or not. Interestingly enough though, based on the policy I looked at, an EPL claim would not be rejected if a covered act is committed by an employee who is here illegally. The policy wording I looked at doesn't specifically exclude acts by "illegals", only illegal acts.

Food for thought. Mass quantities of food…

Lawyers Professional Liability: Five Things That Could Make A Risk Hard To Place

Most of us believe we can easily identify a real estate property that’s “distressed”. It’s pretty obvious when looking at a photo or visiting the property in question. It may not be quite so easy to identify a distressed law firm as respects their professional liability insurance.

Insurance companies that underwrite professional liability for attorneys will consider some of not all of the following risk characteristics when classifying an account as distressed, or hard to place:

• CLAIMS – Just because a law firm has had a claim does not necessarily make it hard to place. There may well be standard, admitted markets willing to quote that account. Key elements to consider are the details of the claim, when the claim occurred and the outcome.
• DISCIPLINARY PROCEEEDINGS – An attorney could be subject to fines, license suspension or revocation (disbarment) as a result of a variety of action/lack of action. As with a claim, a disciplinary complaint against an attorney does not automatically disqualify them from the standard insurance market. Repeated offenses probably will cause your prospect or client to seek coverage in the non-standard market.
• SUITS FOR FEES – It’s certainly not illegal or unethical for a firm to bring a legal action against a client that has failed to pay for legal services. The problem is that frequently that results in a counter suit from the client, alleging that the law firm committed malpractice, among other things. While a single suit for fees on an application for insurance may not disqualify an account, expect few if any standard markets to quote a law firm that makes a habit of suing their clients for fees.
• AREAS OF PRACTICE- These are the disciplines or categories in which an attorney or firm works, or practices. Domestic law is an area of practice, as is Taxation, Insurance Defense and Criminal law. Areas of practice considered “distressed” will vary by insurance company, but a few that are consistently going to create problems for standard companies include: Intellectual Property, Securities and Class Action (Mass Torts). You may also find that many carriers are now limiting what they can write for firms that are heavily involved in Real Estate, as well as Copyright, Patent and/or Trademark. Much of this will vary by state, or areas within a state.
• NEW IN PRACTICE WITH ANY OF THE ITEMS MENTIONED ABOVE - An attorney just starting out in their own practice, especially if they’ve just graduated from law school, will have a smaller pool of companies willing to offer professional liability insurance. If the attorney or firm is new and is also dealing with a disciplinary action, claim or other item listed above, it's almost certainly going to be considered a distressed account.

Many of the issues listed here can be risk managed to prevent them from happening to begin with, or minimize the chances of a recurrence. We're happy to give you some ideas along those lines as well.

Questions? Comments? Call, email or try our live chat feature…

EPLI: Wage and Hour

In a prior blog post I mentioned a few items that could be helpful for you to consider when placing employment practices liability insurance. Here's the next entry, this one on the topic of wage and hour defense coverage. You should be reviewing this for every client you work with...

Wage and Hour violations has been one of the hot buttons for many plaintiff law firms over the past few years. The concept usually goes something like this; attorneys advertise seeking individuals who were employed and feel like they may not have been paid adequately (translation - someone who is disgruntled because they were fired, passed over for a promotion, etc). The most valuable "target" for a law firm is a group of employees that were paid on an hourly basis and that worked a considerable amount of overtime over a long period. Frequently the employer does not keep detailed records of hours worked, or if they do keep those records, they discard them too soon, they can't locate them, they're damaged in some way, etc.

If the plaintiff firm feels moved to bring an action against the employer, they assert that the employee(s) were not paid a sufficient wage for the time worked. Damages could include back pay, plus interest, plus fines, and penalties. The burden is on the employer, not the employee, to prove the pay provided to the employee was accurate. This can be extremely stressful to a business owner, as it will consume considerable time and energy to produce the necessary records - if they exist at all - to prove their position. The stress is compounded if they have an EPL policy that doesn't include defense coverage for this situation or they have some coverage but not the maximum they could have purchased. If the latter case arises (not every policy provides the coverage) the agent of record can count on some stress of their own, and likely a claim against their own E&O policy.

Even if the employer has all of the records to confirm how they paid the employee(s), they may still be liable if they don't have their staff properly classified. Many employers believe that just because a person is called a "manager" or has “additional” responsibilities, that makes it OK to pay that person on a salaried vs hourly basis. This is not correct and could end up costing the employer (your client) in a big way. (Here's another plug for using the risk management tools available on many EPL policies, or at the very least making sure the employer has their staff properly classified and keeps detailed records of hours worked).

Ok, so you're convinced that this is a valuable additional coverage - how does it work?

1. The "Coverage" under most policies is added by endorsement. If a policy has a very recent revision date, it could be included in the wording. When in doubt, ask the underwriter.

2. The "Coverage" is usually defense only - and if so, it will not pay on behalf of the insured for damages, including back pay, fines and penalties.

3. The "Coverage" is most commonly provided as a sub-limit, not the full policy limit. An example would be a policy limit of $1 MILL may only provide $100,000 of wage and hour defense coverage. Whether it's a part of the limit of liability, or in addition to the limit differs by carrier.

4. Defense applies to wage and hour laws that could be local, state or federal, and could apply to foreign laws, depending on the carrier. If you have a client that has operations outside the US, you need to check that provision carefully.

One of the most common areas of law that is involved is the Fair Labor Standards Act. If you are not familiar with this at all, a good place to start is the website for the US Department of Labor; Wage and Hour Division http://www.dol.gov/whd/flsa/

This is by no means the only resource to use, so google the terms and make some phone calls before you speak with your client.

There's much more to this issue, but I hope this gives you a basic awareness and gets you thinking about existing clients or prospects you may be working with now, and how to approach them about this very important issue.

Architects & Engineers Insurance: Submissions

Here's a re-post from last spring. If you want to see other A&E related posts just select from the labels on the right side of the blog page...

When I was eight years old I thought I wanted to be an architect. I had a set of plastic girders and panels made by Kenner Toy Co, ingeniously called the "Girder and Panel Building Set". I made Cape Canaveral, or what I thought was the Cape. I tore that down and made a store, and then an office building, and who knows what else. As I got older I realized that I probably couldn't keep up with the math; Trig was about as much as I wanted to deal with. And by then I had discovered girls, sports and all manner of other distractions. While I didn't become an architect, I've never lost my fascination with buildings and their design, and I'm happy I can still be involved with this class of business as a broker.

Now that you know what I was thinking when I was 8, here are a few things you may want to think about when you are presented with an opportunity to write a business providing architectural or engineering services:

• Revenue is certainly an underwriting consideration, but you will also need to obtain construction values. Annual revenue numbers are pretty obvious, but for construction values occasionally I'll see a submission that either shows "average" values or a "max" value. Unless stated otherwise, what the underwriters are looking for is the annual total value of all of your prospect's construction projects for at least three years, i.e. the "next" 12 months, the recently ended 12 mos and the 12 mos prior to that.


• "Design-Build" firms. If your client is also involved in the building process, the carriers will need a breakdown of revenue between "design only" and "design-build" operations. Even if there's a very small percentage of "build", get the info anyway.

• New in Business. Just like with any other class, if they're just starting an A&E operation, in addition to the app you'll need resumes for the principals. If they want to include names and descriptions of projects they worked on at a previous firm, that's fine, but don't have them send an electronic portfolio of everything they've done since college. If an underwriter really needs more info to qualify the risk they'll ask for it.

• Change in ownership and/or operations. If a new owner takes over you may have a chance to get your foot in the door, especially if something about risk characteristics change. If they're now doing structural engineering and they've never done that before, the current carrier may be forced to non-renew or drastically alter pricing and terms. If they've just been given a contract for a job out of the country, the current carrier may not be willing or able to extend coverage. Find out if anything has changed or is about to change.

• Specific Projects. Sometimes an architect or engineer will not have any professional liability (PL) insurance coverage and will be asked to bid on one project that requires evidence of PL coverage. As you would expect you'll need a full app and full details of the work they are going to do regarding this project to be able to arrange coverage.

• Specific Client Excess. Similar to "specific project" coverage, but in this case one client of the A&E firm is requiring higher liability limits than the firm currently carries. Details of the project will be needed to underwrite this exposure, including name of client, services being rendered, the primary limit of liability and what carrier is writing that layer. A premium indication will be provided subject to review of the primary policy wording.

• Competition/Other Carriers. Find out what carrier is writing the coverage currently. If it's an exclusive program for an association it will be tough to beat their pricing and it may save you some time and energy. If it's a surplus lines carrier you'll obviously want to figure out why (claims, areas of practice, location, etc) and make every effort to obtain terms from an admitted company. I've recently seen a couple of situations where the client of the A&E firm is requiring a minimum AM Best rating, and that may require the client to change carriers.

There are quite a few other considerations, but these are some of the more common ones. Let us know if you need more information or need to discuss a specific situation.

EPLI

Hopefully the proprietor of this fine establishment in Greensburg, PA has an agent who has educated their client on possible coverage options, in addition to doing whatever quality control work they feel compelled to do...

I've not spent much time writing about Employment Practices Liability, as it really belongs in the "management liability" category, but as I see more and more submissions I think it's time to offer some thoughts. As you probably know, many, many standard carriers provide this coverage, so most agents have access to markets. However, there are some other considerations and here are just two things to be aware of; (1) tougher risks, like restaurants, real estate and law firms for example, don't have as many market options available and (2) even though this is a highly competitive class, coverage options are still all over the place.

Here are some policy benefits or coverage options you should be aware of...

Risk Management: I know, I know, most insured's could care less. Hopefully as an agent you're at least talking with your client about the benefits of using the services many carriers provide at no cost to your customer. Those services vary with the carrier but can include:

• online access to forms and procedures
• worksheets/checklists your client can use to see where they stand in comparison to other business operations
• some sort of telephone or internet based help line or similar service
• online or in office training for managers and/or employees

While I understand it's not going to be all that interesting to many insured's, those with claim history or larger or more sophisticated clients should be willing to factor these features into the mix.

ID Fraud Expense: This is definitely not an option that is universal, but some of the carriers are now including a small limit for ID Fraud Expense Reimbursement per employee as a value added item. Usually the "coverage" is for the cost of clearing up credit, not coverage for any lawsuits, and includes some help in navigating through the process. Limits are in the $1000 to $2500 range per employee, but the insured may have the option to purchase a higher limit.

Information Security: This may also be referred to as Network Security, Data Breach or Cyber Liability. There may well be other terms used by other carriers. The coverage could be for the full policy limits, or could be provided as a sub-limit. If this coverage is added by endorsement or included in the policy wording, make sure you understand how it applies. In general, data breach is for loss that arises out of unauthorized access to private data. If it's added to an EPL policy, you should expect it to apply to employment information for past, present or future (applicants) employees.

That's a critical point, because if that's how coverage applies (employees or applicants for employment) it will not substitute for data breach/information security coverage your client may need if they acquire and maintain private data for customers. Don't make the mistake of assuming that "data breach" is "data breach", i.e. it's all the same coverage, and make sure your client is aware of what is intended and what is not.

More to follow...

Get Into the Habit of asking Questions on E&O Prospects

While I have had a variety of habits, one that I've never claimed is running, especially any great distance. There's a great deal of discipline involved with any training but I think even more so running, especially for long distance events.
Photo of the 2011 Boston Marathon
(John Tlumaki - Boston Globe)

We may not all be runners but we all have behaviors we repeat, and when we do things a certain way it's pretty difficult to change, whether it's adding or deleting behavior or trying to develop completely different behavior. For me it's maintaining an exercise regimen - and I have a "habit" of not being consistent!

Habits impact us in our work as well. If you're not used to writing professional liability coverage you may not be used to obtaining certain information that will speed up the underwriting processs. While it may not become "habit" if you don't see alot of this business, if you keep the following in mind it should help save you some time:

1. Current Carrier Info: If there is current coverage in place, find out what carrier is writing it now, limit, deductible, expiration date and the retroactive date of the current policy. If you can determine the existing premium it will allow us to determine right away if we can be competitive, assuming that's important to you, and it usually is. If we're not sure about exact pricing we can at least give you an idea of minimum or likely premiums.

2. Retroactive Date: I know it's listed in item 1, but I see plenty of submissions without the retroactive (prior acts) date provided. It's almost impossible to provide an accurate quote on most risks without the retro date. Most applications have a place to list the current retro date, but it's frequently missed for some reason. Worse are apps that don't ask, so make sure you ask this question of your client. (If your client/prospect gives you a copy of the dec page the retro date may be listed, but check to be sure)

3. Loss Info: If there's been a claim, most carriers have a claims supplement they'd like completed. This is to provide some detail about what happened, which is usually missing from the loss runs and/or claim question contained on the app itself. It doesn't have to be on a formal supplement, if your client will provide a narrative that's fine also. What's also really helpful is if you can include any steps the insured has taken to eliminate or minimize the likelihood of future, similar claims.

4. Business description: This seems contrary to most people's thought process, but the more info you can provide the better chances of attracting more carriers and better rates. This is especially true with professional liability exposures. A simple example is a risk labeled "business consultant". The pricing and terms will depend on the details. If your client's operations include business "takeovers" and/or turn-around management, rates and marekes would be different than for a business consultant that's training office staff on matters involving customer service. Make sure we have the details.

Contact us today - we're happy to help with whatever issues, questions or accounts you may have.