© 2013 Kilpatrick Townsend

DC BAR Non-profit Insurance Webinars

Webinar 2 – Buying Insurance

March 20, 2013

Presented by: David Cox and Erica Dominitz, Kilpatrick Townsend J. Andrew Cooley, Cooley & Darling Insurance Agency, Inc.

•  Regina Hopkins, District of Columbia Bar Pro Bono Program: Purpose, Schedule and Format of Webinars –  Introduction of Presenters

•  J. Andrew Cooley, Cooley & Darling Insurance •  David Cox, Kilpatrick Townsend •  Erica Dominitz, Kilpatrick Townsend

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Introduction

The information contained in this Webinar is not intended as legal advice or as an opinion on specific facts. For more information about these issues, please contact the presenters of this Webinar or your existing firm or corporate contact. The invitation to contact the presenters is not to be construed as a solicitation for legal or other work. Any new attorney/client or broker/client relationship will be confirmed in writing. You can also contact Kilpatrick Townsend & Stockton LLP or Aon Risk Services through their respective web sites at www.KilpatrickStockton.com and www.Aon.com/risk-services.

Overview of Webinar Series • February 20, 2013 – Understanding Insurance • March 20, 2013 – Buying Insurance • April 22, 2013 – Filing an Insurance Claim • May 22, 2013 – Loss Prevention and Mitigation

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•  What Is Insurance? •  How Does Insurance Work? •  Types of Insurance •  Parts of an Insurance Policy

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Review: Topics Learned from Last Webinar

•  The Insurance-Buying Process

•  What Type(s) of, and How Much, Insurance Should Your Organization Buy?

•  Applying for Insurance

•  Tailoring Your Organization’s Insurance to Meet Its Ongoing Needs

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Today’s Topics

The Insurance-Buying Process

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•  The parties to an insurance transaction include: –  Buyer –  Insurance carrier –  Agent or broker

•  An organization’s options for buying insurance: –  Directly from the insurance carrier (certain carriers only) –  Through an agent or broker

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Buying Insurance – How Buying Insurance Works

•  What are the differences between an agent and a broker?

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Buying Insurance – How Buying Insurance Works

Captive Agent Independent Agent Broker

Contracts with Insurance carrier, e.g., State Farm

Multiple insurance carriers

Multiple insurance carriers

Duty is owed to Insurance carrier; administrative to customer

Insurance carrier; administrative to customer

Customer – to secure appropriate coverage

Compensated by Insurance carrier Insurance carrier and/or

customer Customer decision – commission and/or fee

Markets accessed Insurance carrier to whom captive

Various carriers with which contracts

Various carriers with which contracts

Knowledge of Market(s)

Generally some knowledge outside captive insurance carrier; expertise in captive carrier products

Generally broad knowledge of markets but expertise in those markets with which contracts

Generally broad knowledge of markets / marketplace

Services Limited to offered by carrier

Multiple service offerings Multiple service offerings

•  Advantages of working with a broker include: –  Independent advice / consultation from a third-party insurance

professional –  Duty is owed to the insurance buyer –  Options available as to products and coverage –  Has many products and services in addition to insurance brokerage

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Buying Insurance – How Buying Insurance Works

•  Choosing a broker –  Market leverage and market expertise –  Service capabilities (brokerage vs. brokerage plus more) –  Broker’s approach to needs and product assessment and delivery –  Brokerage process includes:

•  Broker visits with you to discuss your organization and risks associated •  Strategy discussion about how and what will be marketed •  Quote and, ultimately, binding of coverage

•  Choosing an insurance carrier –  Products and services to meet your needs –  Financial ratings – A.M. Best / S&P / Moody’s

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Buying Insurance – How Buying Insurance Works

•  Communicating with your broker –  To the extent permitted by law, communications are confidential. –  However, courts do not recognize an insured-broker privilege.

Consult with counsel before communicating with your broker!

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Buying Insurance – How Buying Insurance Works

What Types of, and How Much, Insurance

Should Your Organization Buy?

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•  Review: What Types of Insurance Are Available?

•  What Is Your Organization’s Risk?

•  Does Your Organization Have Legal or Contractual Requirements to Provide Insurance?

•  How Much Insurance Does Your Organization Need?

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Buying Insurance – Assessing Your Organization’s Insurance Needs

•  First Party v. Third Party Insurance

•  First party insurance protects against direct losses that you suffer, such as damage to your property or interruptions to your business related to damage to your property.

Example: Property/Business-Interruption Insurance

•  Third party insurance (also known as liability insurance) protects against your liability for losses that others claim to suffer, even if such claims are baseless.

Example: Commercial General Liability (CGL) Insurance

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Assessing Your Organization’s Insurance Needs – Review: Types of Insurance Available

Insurance Covering Specific Risks

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Assessing Your Organization’s Insurance Needs – Review: Types of Insurance Available

•  Directors’ & Officers’ Liability Insurance

•  Errors & Omissions Insurance

•  Fiduciary Liability Insurance

•  Employment Liability Insurance

•  Workers Compensation Insurance

•  Cyber-liability Insurance

•  Media Liability Insurance

•  Pollution Liability Insurance

•  Sexual Abuse Liability Insurance

•  Product Recall Insurance

•  Fidelity Bonds

•  Kidnap/Ransom Insurance

•  Marine Insurance

•  . . . and much more! (e.g., liability insurance for exposure to mold or lead)

•  Non-profit “all-in-one” policies –  Several insurance companies offer “all-in-one” policies that cover

common risks for which nonprofits seek insurance. –  Often include some combination of Directors & Officers, General

Liability and Automobile, Property/Business Interruption, Professional Liability

–  Will often include specialty coverages such as Liquor Liability, Sexual Abuse, or Cyber-liability

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Types of Insurance – Non-Profit “All-In-One” Policies

•  Insurance Covering Different Layers of Risk

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Assessing Your Organization’s Insurance Needs – Review: Types of Insurance Available

Primary (e.g., Auto)

Umbrella

LOS

S

Primary (e.g., CGL)

First Excess

Second Excess

•  What does your organization do?

•  What property does your organization own or lease?

•  Whom does your organization wish, or need, to insure?

•  With what resources can your organization respond to an accident or claim?

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Assessing Your Organization’s Insurance Needs – What Is Your Organization’s Risk?

•  Contractual Requirements to Provide Insurance

•  Legal Requirements for Some Organizations to Provide Insurance –  Worker’s compensation, statutory disability, and unemployment

benefits –  But also others, such as owned vehicle liability insurance

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Assessing Your Organization’s Insurance Needs – Requirements to Provide Insurance

•  Challenges and strategies to assessing how much insurance to buy: –  Policy Limits (amount of insurance purchased) depends upon

various considerations, such as: •  Asset size •  Automobile exposures •  Property values

–  Benchmarking, e.g., Advisen, is a good data point but should not be considered a complete answer.

–  Your insurance agent / broker professional can assist you in assessing your risk and examining your options for buying insurance and/or self-insuring.

–  Keep in mind your organization’s assets could be at risk if you fail to purchase enough insurance limits.

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Assessing Your Organization’s Insurance Needs – How Much Insurance Should You Buy?

•  Deductibles / Self-Insured Retentions –  Deductible is the insured’s portion of the loss, but is within the

policy limits of insurance and is paid after the insurance carrier pays a loss. Generally provides for first dollar defense on liability claims.

–  Self-insured retention is paid by the insured prior to insurance carrier involvement and is in addition to the policy limits of insurance. As regards liability policies, SIR is normally not eroded by defense costs, i.e., the insured must pay all defense costs until SIR eroded by compensatory damages.

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Assessing Your Organization’s Insurance Needs – How Much Insurance Should You Buy?

•  Considerations for balancing coverage and deductibles/self-insured retentions (SIR) with premiums: –  Budget –  Your organization’s appetite for risk –  Changes in your organization’s exposure to risk

•  Potential obstacles to assessing how much insurance to buy include available and effective benchmarking.

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Assessing Your Organization’s Insurance Needs – How Much Insurance Should You Buy?

Applying for Insurance

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•  Overview

•  Completing the Insurance Application

•  “Quoting” and “Binding” Coverage

•  Receiving and Reviewing Your Policies

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Buying Insurance – Applying for Insurance

•  Your organization provides information to the insurance company about your organization’s business. This disclosure focuses on the risks that your organization’s business poses to third parties and on the risks posed to your organization’s property. This information should be as complete and accurate as possible to avoid disputes in the event of a claim.

•  The insurance company then decides: –  Whether it will offer to insure your organization at all; and –  If so,

•  What scope of coverage it will offer (e.g., exclusions) •  What amount of coverage it will offer (deductibles or self-

insured retentions, limits, and attachment point) •  What it will charge (premium)

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Applying for Insurance – Overview

•  Reluctance to Making a Full Disclosure •  Importance of Making a Full Disclosure

–  When a buyer of insurance misrepresents, omits, or conceals material information to the insurance carrier during the process of applying for a policy, the insurance carrier might seek the policy’s rescission.

–  As a similar remedy, the insurance carrier might seek the policy’s reformation.

–  The insurance carrier also might assert the defense of material misrepresentation against a particular claim.

•  Protecting against a Co-Insured’s Inadequate Disclosure –  See sample “severability” language

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Applying for Insurance – Completing the Insurance Application

•  Quoting Coverage –  Definition: A quote is document received evidencing the insurance

carrier’s offer of coverage terms and conditions. –  Review all quote documents, including proposed policy forms and

endorsements, thoroughly with your agent or broker; ask for explanation of any areas on which you are not clear.

–  If there are multiple layers of coverage provided by various insurance carriers, specify that you would like all coverage to be consistent to avoid potential gaps.

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Applying for Insurance – “Quoting” and “Binding” Coverage

•  Binding Coverage –  Definitions:

•  A “binding order” is the communication of agreement to affect agreed coverage and is given by the insured to the agent/broker who then communicates the order to the insurance carrier.

•  The result of a “binding order” is a “binder” document. •  The “Binder” document temporarily evidences the agreed terms

and conditions including effective date, premium, commission and coverage.

•  The “Binder” is replaced by the policy in due course.

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Applying for Insurance – “Quoting” and “Binding” Coverage

•  Binding Coverage (continued) –  Key Concepts:

•  Once your coverage is bound, the coverage applies on the effective date evidenced.

•  Binder documents are generally limited to high-level information. The policy document includes the details.

•  We recommend contract certainty at effective date of coverage, meaning all wording has been evidenced either in quote, binder, or policy document issued before the effective date.

•  Best practice: Review all documents to confirm they are in line with the quotation and binding order.

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Applying for Insurance – “Quoting” and “Binding” Coverage

•  As soon as your organization receives its policy, someone should read it thoroughly to ensure that: –  It is in line with coverage quoted and bound, and –  Policies within the same program provide seamless coverage.

•  Review again at this time for consistent language across policies within the program, i.e., follow form as to particular policy language.

•  Note: In some jurisdictions, where there is a dispute in a court of law, a policyholder is presumed to have reviewed its policies.

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Buying Insurance – Policy Delivery

Tailoring Your Organization’s Coverage to Meet Its Ongoing

Needs

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•  Why change your insurance? –  Different needs –  Claim/loss experience –  New insurance product –  Market conditions

•  How/when to change your insurance? –  Endorsement –  Renewal

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Tailoring Your Organization’s Coverage

•  Endorsement –  Addition to standard policy language –  May supersede language in the policy or a prior endorsement –  Effective date

•  Renewal –  Update application –  Revisit purchase decisions / assumptions –  Make changes as appropriate

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Tailoring Your Organization’s Coverage

Questions?

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Buying Insurance

VI.  REPRESENTATIONS AND SEVERABILITY

A.  The Insured represent that the particulars and statements contained in the Application are true and agree that (1) those particulars and statements are the basis of this Policy and are to be considered as incorporated into and constituting a part of this Policy; (2) those particulars and statements are material to the acceptance of the risk assumed by the Underwriter under this Policy; and (3) this Policy is issued in reliance upon the truth of such representations.

B.  Except for material facts or circumstances known to the Individual Insured signing the Application, no statement in the Application or knowledge or information possessed by any Insured shall be imputed to any other Individual Insured for the purpose of determining the availability of coverage.

Source: Philadelphia Insurance Indemnity Company Specimen Policy for a Non-Profit Organization

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Sample “Severability” Language

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