All executive and professional lines of coverage qualify:  D&O, EPL, Fiduciary, Crime, Privacy Liability/Network Security, and of course, Professional Liability.

Send in your real estate risks today!

I’ve known forever that my personal “why” is to help, save, raise, love and care for as many animals as humanly possible.  But what is my business “why”?  Hmmm.  It only took a moment for that to bubble to the top of my mind:

To re-define the role and art of wholesale broking in professional liability.

Those of you who do business with me, whether carrier or agent, know what I’m talking about.  At the risk of sounding disrespectful to the majority of my colleagues, I won’t go into detail here.  Suffice it to say that I bring a rare combination of technical know-how, respect for the process, intervention and value-added services to the mix.  If you want more detail, please email me separately.  As of now, I’m only one little fish in a very large pond of “normal” brokers and their “normal” broking activity.

So what will it take to do this re-defining?  I believe it will take a process where I can train brokers how to do business my way, and grow them in this rare mold.  That can happen if my book at US Risk gets big enough that I can hire more staff and eventually have my own sub-group, but I see that as a long, slow route.  I’ve offered US Risk to allow me to be the practice leader and teach our dedicated PL brokers.  No dice there yet.   There could be other ways it can happen.  I’m open to suggestions and opportunities to effect this vision.

Just a reminder to everyone that this month, and this month only – environmental risks get an extra 2.5% commission.  Submit or bind in the month of August – new business – and you earn extra free money!

This counts for contractors pollution risks, site pollution, environmental contractors and consultants, and any executive lines coverage for any of these classes.    So even if we’re just writing EPL on a consultant you have whose E&O doesn’t come up till next February – you get 2.5% additional commission.

Send me the business!

My technical support has been lacking the last few months, so I’ll be posting the promotions here as well as notifying agents through any other means available. 

So, this month (and due to notification issues, I’ll extend this promotion through August 31) – I’m providing 2.5% additional commission on all environmental risks.

This includes risks such as:  Environmental contractors, environmental consultants, contractors pollution liability for non-environmental contractors, mold coverage on anyone who needs it, restoration contractors, inspectors, and site pollution risks. 

Lines of business that qualify would be Professional Liability, Contractors Pollution Liability, CGL (in combo), and any executive protection lines such as D&O, EPL, or privacy liability.

Send risks!  And if you would like a list of upcoming promotions, please shoot me an email (chrisc [at] usrisk [dot] com) and I’ll send you my campaign schedule.

Stay tuned for more info….

Kidnap & Ransom — the Real “Executive Protection” coverage –  consolidated re-post of 2/25 – 3/11 Knowledge Knuggets 

A while back I posted on Twitter regarding my Executive Protection Checklist.  Interestingly, a couple days later I was being followed by an Executive Protection expert — a bodyguard firm.  I had never thought of “Executive Protection” that way, but certainly the purest form of Executive Protection is that of the Executive himself or herself against bodily harm.

One of the lines of business within any good Executive Protection program is Kidnap and Ransom coverage (sometimes also referred to as “Kidnap, Ransom & Extortion” coverage).

First thing to know is that K&R coverage is not nearly as mysterious as it initially appears.  It can be very cloak and dagger, but in its most straightforward incarnation, it is simply a reimbursement policy for ransom monies paid to kidnappers, or attempted to be delivered to kidnappers. 

Now, assuming that anyone who has enough money to attract kidnappers would also have enough money to pay them, this becomes merely balance sheet protection, and that in and of itself has a great deal of value.  Typical insureds for this would be bank executives, CEOs of large companies, and especially wealthy executives that travel to foreign lands.

However, a policy does more than just pay ransom or extortion monies.  Once an insured has a policy in-hand, they also get the benefit of having someone to lean on if and when the unimaginable happens.  All the major K&R carriers have contracts with companies that specialize in executive protection (bodily) and they have extensive experience in negotiations, extractions, repatriation, and delivery.

The four major coverage parts found in most policies include:  Kidnap, Extortion, Detention, and Hijack. 

Extortion can pertain to threats to do bodily harm, threats to impair property, and threats to harm data.  The harm done can include not only damage to the property or data, but also reputational harm evolving from the publicity about same.

Detention refers to circumstances where the insured person is detained by the authorities (or sometimes others) in a country due to an actual or alleged violation of some kind.  If the insured person truly is in the country illegally or engaged in illegal activities, the policy tends to exclude coverage.  However, if the insured was not blatantly violating laws, the policy would generally respond.

Hijacking refers to insureds being nabbed in their vehicles for a quick return on the kidnapper’s investment of time.  Small demands, ATM withdrawals, or just the taking of whatever valuable possessions or money the victim has on his or her person at the time may satisfy the kidnappers.

The types of expenses covered by these policies can be mind-boggling.  A short list includes:  ransom, of course; crisis management expenses, negotiators’ expenses, legal expenses, medical expenses, psychiatric aftercare, family travel expenses, the insured company’s travel expenses, salary of the victim, salary of a replacement worker for the victim, reward for informant, advertising costs, and legal liability should the insured company be sued by the victim or his or her estate.

Who can be insured under these policies?

The company, its executives, or even all employees, if desired.  Also included are family members, guests, domestic workers.  Some policies include all ancestors and all lineal descendants.  Others limit coverage to grandparents and grandchildren — no “greats” or “great-greats” included.  Coverage can be written on a scheduled basis, if desired, and some policies are purchased as individual or family policies without regard to any corporate entity.

One outlier of coverage is found in “child abduction” coverage.  This coverage is generally used for hospitals in case someone abducts an infant or toddler from the facility.  This is specialized coverage because these abductions frequently do not result in any ransom demand so otherwise would not trigger coverage.  Limits may be different from the main coverage part, so consider carefully what’s needed.  Ransom is not usually what will eat up the limit, but there are other expenses to contemplate.

So how do you identify who among your insureds should carry this coverage?  Think about:   

• Insureds with significant personal wealth
• Insureds working for very large, high-profile or controversial companies (banks, oil/gas developers, chemical plants, etc.)
• Insureds who travel abroad
• Insureds who live or work near the southern border
• Insureds with family that travels

Below you will find my recent Knowledge Knugget discussing the dangers of agents serving on boards.

I’m adding a new danger here, thanks to a discussion with one of my favorite agents in CA who noted a particular problem.

What happens if the agent has to make a claim against his insured, on whose board he sits?  There are not many circumstances under which this could happen, but it is a possibility.  How does he reconcile his duty of loyalty under those circumstances?  And I cannot imagine the befuddlement of the carrier that receives a claim on an insured where the agent who placed the business is the claimant.  And what if there’s no coverage, and the agent then gets sued by the client, yet he’s the claimant in the first place?  Theoretically, at that point, they would stop the insanity, consider the claims to be offsetting and dismiss the whole thing.  But maybe not.

The particular situation that brought this topic up had to do with a potential personal injury claim against an entity.   But I’ve also contemplated — what happens if an agent’s on the board of an entity, and the entity doesn’t pay its premium, and the agent needs to take action to recover the premium?  As you may know, defaults can be subject to a D&O policy if the Ds & Os knew they were misleading the creditor at the time credit was granted.

What if the agent director was kept in the dark and thus extended credit (ordering coverage bound, let’s say, on a policy with 25% minimum earned — like a non-standard condo HOA), and now is stuck with that 25% minimum earned because the insured’s check bounced.  How is he going to unravel that?  What if there’s an uncovered claim due to the policy being cancelled and they sue him, and he feels he must counter-claim against them to protect himself?  How do you explain that to the carriers you just bound the insured with, and your E&O carrier?  Weee, What a Predicament! (as John Travolta exclaims in Face-Off, one of my all time favorite movies).

Imagine how complex it could get if an agent sat on the board of the HOA where he lived and wrote all their coverages and had a property or GL claim.  Covered or uncovered.  Wow.

Anyway, chew on all that (yes, I know — I worry too much) while you read the below Knugget, and let me know your thoughts….

* * * * *

Twice last week I had occasion to discuss the topic of agents writing insurance for entities on whose boards they sit.  This is a common road to production for many agents, but let me share with you why it might not be an course of conduct in which you want to engage:

First problem –

If you’re sitting on a board, it is your duty to put loyalty to that entity above any loyalty to yourself.  If you are placing insurance for this entity, can you honestly say that you are doing the very best for this entity that can be done?  Do you have all the markets that are appropriate for its business?  Are you giving up your commission so as to procure the lowest possible pricing?  Are you doing what it takes to ensure the entity buys all needed insurance, even if you are not overly familiar with some lines of business?

Can you possibly ever avoid the inherent conflict of interest that comes with making money off of a service you provide the entity?

To complicate matters, what happens if you’re also on the board of your agency?  How can you reconcile those two entities’ needs?  You can’t.  You have to put loyalty to one above loyalty to the other, and therein lies the rub.

If the question ever arises as to whom you placed first, you will have very few defenses.

Solution?  Possibly, you could hand the account to someone else in your agency and act only as a referral resource.  Your agency would still make the revenue, and if you don’t profit personally from the placement, you will be at less risk.  Still, not completely free of risk because at the end of the day, your agency, and the coverages and pricing it can provide may not be deemed as the best possible for the entity.

Second problem –

Check your insurance agents E&O policy, and you may find that claims arising from your services rendered to any entity for which you are a director are excluded.  This is not an uncommon exclusion.  There is usually some form of exclusion that eliminates coverage at least for claims made by entities over which you exercise control (by ownership or by directorship), and sometimes the exclusion extends to all services rendered to, not just claims made by, those entities.  That means you may have no coverage even if a third party makes a claim against you, rare though that might be.

So if the worst case scenario occurs, and your entity has an uncovered claim, there will be no coverage simply because you sat on the board.  No coverage for you, and most of the time, no coverage for the agency.  How, then will you resolve that claim?  Out of your own pocket?  Scary stuff.  And again, what if you’re on the board of the agency?  How could you have exposed it to such financial harm?  Now you’ve violated your duty of loyalty and duty of care to the agency.  Not good.

My recommendation both from an agents E&O risk management perspective and from a D&O risk management perspective is that you should not place coverage for any entity on whose board you sit.

If sitting on boards is a large part of your networking and business-building process, use it for networking, and write every other board members’ coverage, and that of all their friends.  But when it comes to the entity’s coverage take the high road, and advise the board that you cannot write the entity’s coverage yourself without creating an inherent conflict and sacrificing the protection of your E&O policy, and refer them to another agent or three.  You’ll sleep better at night if you do.

I think most agents who write insurance under these circumstances have not thought through the ramifications.  It all looks so simple on the surface.  But it’s not.

Next week’s Knowledge Knugget will discuss this topic in more depth.  Sign up prior to 2/4/10 to receive the KK in your mailbox bright and early.  I’ll post it here sometime after its distribution to my mailing list.

We’ll kick off this year by discussing some quirks in PL placements, which become quickly apparent when an agent or insured expects the same responses from underwriters as they would enjoy from a GL carrier.

For this installment, we’ll review two specific quirks:  Additional Insureds and excess limits.

1.  Additional insureds

As you know, in the world of GL, if you want an Additional Insured added to coverage, you request it, identify the relationship, and you get an endorsement for x amount of money.  The carrier is then willing to notify the AI if coverage ceases and will defend claims against the AI.  Not so in the world of Professional Liability.

It’s rare for there to be Additional Insureds on a PL policy.  There are some exceptions, which I’ll save for a future Knugget.  Here are some reasons carriers will not provide Additional Insured status to Insureds’ clients.

a.  The policy exists to protect the professional — not his clients.
b.  An allegation of professional negligence is needed to trigger coverage, and the client is not the one rendering the covered professional service.  Therefore, tender of a claim against them would not trigger coverage under the insured’s policy.
c.  Defense is within the limits (generally) so providing defense to a third party would erode the insured’s limits.
d.  The Insured v. Insured exclusion in the policy will void coverage for any claim brought against the insured by the AI client.

An outgrowth of this overall reluctance to provide coverage to AIs is further demonstrated by the fact that even those carriers that will add an AI will absolutely decline to comply with an AI’s request to be notified of cancellation of a policy.

2.  Excess limits

In the world of GL, a 4mm xs 1mm limit is available broadly and for pennies on the dollar.  No one thinks twice about it, regardless of the size of the insured or why they want the higher limit.  It’s considered wise to always offer those additional limits to your insured.

In the PL world, carriers are more circumspect about putting up limits.  If you have an insured with, let’s say, 200k, or even 2mm in revenue, and you request a 5mm limit, you will not get it from most carriers.  If you place a 1mm limit, then seek a 4mm xs 1mm, you will likely not have much luck.  Here are some reasons carriers give for not putting up large limits:

a.  PL is a severity line, not a frequency line, so if a claim occurs, it may well exhaust the entire limit
b.  The carrier will not put up limits higher than the insured’s revenue
c.  The carrier will not put up limits higher than the insured’s assets
d.  The carrier cannot get enough rate for the limit
e.  The carrier does not want its policy to be the insured’s biggest asset
f.  There appears to be some correlation between limit availability and loss incurred, so carriers do not want a high limit to be an attraction to plaintiffs.
g.  The carrier will not provide an excess limit higher than the underlyer (i.e., if the primary is 1mm, the most they will put up is 1mm)

Pricing for PL excess limits is much heavier than that of GL.  For example, if a 1mm limit costs $10,000, a 5mm limit is likely to cost $24,000.  (5mm increased limit factors in PL often ranging from 2.30 to 2.45)  The 4mm xs 1mm costs an additional $14,400!   I’ve had agents fall out of their chairs with that kind of pricing because they were expecting a quote for a fraction of the 10k primary premium.  A 5mm xs 5mm limit will range from 40% – 70% of the underlying 5mm, depending on the line of business and the quality of the risk.

This pricing model, again, is largely driven by the fact that PL is a severity line.  In some lines with a tendency to more frequency and a lot of actuarial data, you might see the ratios come down a little.

There are some exceptions to the reluctance to provide higher limits, and in a future Knugget, I will touch on some tricks of the trade to persuading underwriters to put up the limits you need.
Chris Christian, CIC, RPLU
Vice President/Senior Broker
US Risk Brokers

760-415-4213 or for TN agents 615-273-3451

Knowledge Knuggets do not constitute legal advice, nor are they the opinion of US Risk.

Please feel free to suggest future Knowledge Knugget topics.

Visit www.pltidbits.com for archived Knowledge Knuggets and other Important Items regarding professional liability.

chrisc [at] usrisk [dot]com

I am accepting new agent appointments, so please give me a call or send submissions if you feel I can be of assistance with your complex risks.  Or, if you just like working with propellerheads – let’s chat.