Peace of Mind: Risk Management and Insurance for In-House Counsel A. Peter Prinsen, Esquire, CPCU, RPLU, ASLI, AIC Vice President and General Counsel The Graham Company Doug Deems, Esquire General Counsel The Claro Group, LLC Wendy Estela Scaringe, Esquire Counsel Gemma Power Systems 1 What An In-House General Counsel Should Know About Third Party Coverage A. Peter Prinsen, Esquire CPCU, RPLU, ASLI, AIC Vice President and General Counsel The Graham Company 2 Risk Management Methods for Handling Risk 1.Avoidance (get out of that business) 2.Insurance (buy protection from an Insurance Company) 3.Loss Control (try to prevent the loss) 4.Non-Insurance Transfer (transfer the risk to someone else in a contract) 5.Retention - (choosing to Self Insure the risk) 3 Insurance Coverage Third Party Coverages Protects you from a claim brought by a third party against your organization First Party Coverages Protects you from a loss to your Property 4 Insurance Third Party Coverage Third Party Coverages a.Who could sue you: Customers/Clients Business Invitees General Public Shareholders Employees 5 Policies that Cover Suits from Third Parties 1.General Liability 2.Automobile 3.Workers Compensation 4.Umbrella Liability 5.Professional Liability 6.Directors & Officers Liability 7.Employment Practices Liability 8.Fiduciary Liability 9.Cyber Liability 6 Insurance Third Party Coverage 1.General Liability Policy Exclusions a.Other Policies i.Workers Compensation & Employers Liability ii.Pollution iii.Aircraft, Auto, Watercraft iv.Liquor Liability v.Damage to Property you Own or Rent b.Business Risk i.Damage to Your Product ii.Damage to Your Work iii.Product Recall (can purchase coverage) c.Catastrophe i.Nuclear ii.War GL Exposures from Operations GL Policy Terms and Conditions Exclusions GL 7 Insurance Third Party Coverage 2.Business Auto Coverage a.Covers Autos identified on the Declarations of the Policy b.Covers the Legal Liability Insured (you) must pay as damages because of bodily injury or property damage resulting from the ownership, maintenance or use of a covered auto, subject to policy terms, conditions and exclusions 8 Insurance Third Party Coverage 3.Workers Compensation & Employers Liability Coverage a.Workers Compensation Statutory Coverage Not Liability Sole remedy for specifically listed states b.Other States Insurance i.Provides coverage if you begin work in a state after the effective date of policy ii.If you are working in a state as of effective date have 30 days to notify iii.Excludes Monopolistic states c.Employers Liability Insurance 9 Insurance Third Party Coverage 4.Directors & Officers Liability (D&O) a.Covers wrongful acts of Directors & Officers as respects their duties for the company b.Covers Directors & Officers for personal liability c.Entity Coverage d.Claims-Made Basis 10 Insurance Third Party Coverage 5.Fiduciary Liability a.Covers Insured Company and Trustees Personal Liability b.Wrongful Acts related to the handling of the companys retirement plans and benefit plans 6.Employment Practices Liability (EPL) b.Covers Entity and Employees c.Wrongful Termination d.Discrimination e.Harassment June 3, 2006 California Jury Awards $61 Million for Harassment ABC NEWS 11 What Every In House Lawyer Should Know About First Party Coverage Doug Deems General Counsel The Claro Group 12 13 Counsels Potential Role in First Party Claims Initial Scope of Loss/ Resumption of Ops Claim Development/ Communications Negotiation & Settlement or Other Resolution Placement & Breadth of Coverage 14 What Does First Party Property Insurance Cover (or what did I buy)? 1.Generally speaking, First Party Property Insurance covers: a.Physical damage to a companys property or property in a companys care, custody or control b.Loss of profits and continuing expenses resulting from a covered loss to your company or a key vendor/supplier c.Extra expenses 15 Does the Policy Cover All Risks or Named Perils? 1.All risk" policies cover fortuitous losses from any peril not specifically excluded; "named peril" policies cover losses only if they result from a specified cause (e.g., fire, flood, windstorm, theft, collapse, water damage) 2.Typical "all risk" language: "This coverage insures against all risks of direct physical loss or damage to the property described in Paragraph 1. 3.Under an all risk policy, the policyholder need only show that the insured property suffered a loss while the policy was in effect; the burden then shifts to the insurer to prove that the cause of the loss was excluded from coverage under the policy's terms. Mejia v. Citizens Prop. Ins. Corp., 161 So. 3d 576, 578 (Fla. Dist. Ct. App. 2d Dist. 2014) 16 What Kind of Property Does the Policy Cover? 1.Does the policy on my building cover the contents? 2.Is the policy limited to "business" or "personal" property? a.Example - A policy that covers a jeweler for the theft of rings in her case may not cover her for the theft of the rings she wore to work. 3.Does the policy cover loss of intangible property, such as accounts receivable or electronic data? 4.Is the policy "location-specific" - does it cover items like machinery or fixtures if they are moved to a new location? 17 Property Damage 1.Recoverable costs can include: a.Cost of new machinery or material b.Freight, duties, and taxes c.Professional fees and expenses d.Overhead Travel Labor Meals and Transportation 18 Key Business Interruption Endorsements 1.Contingent Business Interruption a.Coverage for losses resulting from physical damage to key suppliers or key customers 2.Civil Authority a.Business interruption and extra expenses losses caused when access to property is prohibited by order of a civil or military authority 3.Ingress/Egress a.Coverage when access to a property is impeded but without the need for an order that restricts access to property 19 Key Business Interruption Endorsements (Cont.) 4.Service Interruption a.Coverage for losses incurred due to the interruption of utility service resulting from physical damage to the property that supplies the utility 5.Waiting Period a)Time after the incident in which the period of restoration begins acts as an unquantified deductible can be any time period (e.g. 24 hours, 7 days, etc.) 20 Extra Expense 1.Necessary expenses incurred during the period of restoration to avoid or minimize the suspension of business and to continue operations a.Suppose a business suffers a serious fire, and restoration is expected to take 6 months. If the insured spends an additional $100,000 to set up operations at a temporary location and, by doing so, can continue operations during the reconstruction period, then this amount should be recoverable if the policy provides extra expense coverage 21 Other Potential Coverage/Endorsements 1.Claims preparation expense 2.Extended periods of business interruption 3.Leasehold interest, rental values, royalties Potential sub-limits 1.Earth Movement, Flood, Named Storm or Wind 2.Demolition/Debris removal 3.Professional Fees/Loss Adjustment Expense 4.Extra Expense 5.Accounts Receivable/Valuable Papers 22 Selection of First Party Issues 1.Property Damage a.Was there physical damage? b.Efficient proximate cause vs. anti-concurrent causation c.Upgrades/Betterments d.As was vs actual repairs e.Who pays for determination of cause of loss and how to fix? 23 Selection of First Party Issues (Cont.) 2.Business Interruption a.Using Forecasted Figures in an Economic Downturn b.Post loss financial impacts c.Contingent losses without property damage d.Sales contracts lost due to inability to produce 24 Final Thoughts 1.Share your understanding/concerns about risks youve been involved with and understand whether those risks are or might be addressed by insurance 2.Ask your risk manager/director of risk to outline coverages and provide summaries 3.Dont rely on what others say is covered; read the policies and exclusions yourself 4.Ensure your companys coverage aligns with your disaster recovery plan 5.Dont necessarily take no for an answer (when told that coverage is not available) 25 Insurance Program Management for In-house Counsel Wendy Estela Scaringe, Esquire Counsel Gemma Power Systems 26 1.Risk Management, Contract Management and Legal Functions Overlap 2.Smaller companies may not have separate functions 3.You cant hide. Eventually you will be involved-- Embrace the opportunity 4.Build a toolkit 5.Gain Competitive Advantage 27 Risk Management, Contract Management and Legal Functions Overlap 1.Risk Transfer, Indemnification in contract is often covered by insurance a.Know your policy coverage and exclusions b.Read the details c.Know when to ask questions of your broker 2.Contractual risk can be quantified if an insurance product is available a.Cost of premium and deductibles 28 Smaller Companies May Not Have Separate Functions 1.Limited resources 2.Non-core business 3.Not a full time role 4.Outsourced 5.Example 29 Eventually You Will Be Involved. Insurance Questions Arise: 1.During contract negotiations & deal making 2.When hiring subcontractors, suppliers, vendors 3.When performing services 4.When disputes arise 5.When you are sued or subject of an investigation (CHRO, OSHA whistleblower, etc.) 30 Eventually You Will Be Involved. Insurance Questions Arise: (Cont.) 6.Foster a relationship with your insurance broker a.They are doing more than just selling insurance b.Value added services 7.Understand the needs of your client a.Example: Contract drafting, determining amount of coverage, reviewing COIs 8.Build a Toolkit a.See examples Excess Liability Chart, COI Checklist 31 1.Competitive Advantage 2.Many attorneys shy away from insurance related issues embrace them! 3.Knowing even the basics of issues such as additional insured status, subrogation, primary/non-contributory language will broaden your knowledge base 4.General Counsel/Risk Manager role 5.Personal experience a.From Hot potato to expertise Eventually You Will Be Involved. Insurance Questions Arise: (Cont.) 32 Indemnification/ Hold Harmless Agreements A. Peter Prinsen, Esquire CPCU, RPLU, ASLI, AIC Vice President and General Counsel The Graham Company 33 Types of Indemnification/ Hold Harmless Agreements Broad Form Intermediate Form Limited Form Indemnifies a party for even that partys sole negligence. Indemnifies a party for its own negligence except if that party is solely negligent. Does not indemnify a party for its own negligence. 34 Enforceability Flowchart Does the liability arise out of the Subject Matter of the Clause? Is the Clause sufficiently clear or definite to meet the courts standard for enforceability? Is the indemnitee seeking indemnity for its own Negligence? Indemnity Allowed Does States Anti- Indemnity Statute Allow Clause to be Enforceable? Indemnity Allowed Indemnity Not Allowed Indemnity Not Allowed Yes No Yes Source: International Risk Management Institute 35 Broad Form Indemnification To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architects consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including, but not limited to, attorneys fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property 36 Broad Form Indemnification (Cont.) (other than the Work itself) including loss of use resulting therefrom, arising out of or in any manner connected with the work by the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, even for, and if caused in whole or in part by, the negligence and other acts or omissions of the indemnified parties. 37 Intermediate Form Indemnification 1. Potential Indemnification for attorneys fees and damages 2. May require a fact and finding of No Sole Fault To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architects consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including, but not limited to, attorneys fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss 38 Intermediate Form Indemnification (Cont.) or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, arising out of or in any manner connected with the work by the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, even for, and if caused in part by, the negligence and other acts or omissions of the indemnified parties and regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified. 39 Limited Form Indemnification 1. Potential Indemnification for attorneys fees only 2. Requires a factual finding of No Fault To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architects consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including, but not limited to, attorneys fees arising out of or resulting from performance of the Work, provided that such claim, damage, 40 Limited Form Indemnification (Cont.) loss or expense is attributable to bodily injury, sickness, disease or death, or injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused solely by the negligent acts or omissions of the Contractor, a Sub- contractor, anyone directly employed by them or anyone for whose acts they may be liable. 41 Anti-Indemnity Statutes Where found? -Construction -Oil field (Louisiana, Texas) -Residential Leases (New York) 42 Anti-Indemnity Statutes (Cont.) Two Types: 1. Prohibits Broad Form Indemnification 2. Prohibits Intermediate Form Indemnification 43 General Liability Additional Insured Endorsements Another Variation A. Peter Prinsen, Esquire CPCU, RPLU, ASLI, AIC Vice President and General Counsel The Graham Company 44 General Liability Additional Insured Endorsements Does it Cover the Negligence of the Additional Insured? 45 Negligence of the Additional Insured Four Options 1.Always cover Sole Negligence (old ISO Endts) 2.No coverage for Sole Negligence (07/04 ISO endts) 3.Covers Sole Negligence only if required by contract (manuscript option see our specs) 4.New Option 46 Scope of Coverage for Additional Insureds with OLD ISO Endorsements Provides Owner with Additional Insured Coverage for: Owners Vicarious Liability Negligent Acts Caused in Part by Owner Negligent Acts Caused in Whole by Owner (Sole Negligence) Shifts which Policy Pays for Claim Owners GL Policy Our Clients GL Policy 47 Old ISO Endorsements These Endorsements use the Phrase: liability arising out of 48 Impact of Revised ISO Additional Insured Endorsements (7/04 and later) Owners GL Policy Our Clients GL Policy Owners GL Policy now Provides Coverage for: Owners Sole Negligence Negligent Acts Caused in Part by Owner BUT NOT Caused in Part by Our Client Provides Owner with Additional Insured Coverage for : Owners Vicarious Liability Negligent Acts Caused in Part by Owner and CAUSED IN PART by Our Client More Claims Shifted Back to Owners Policy 49 07/04 ISO Endorsements These Endorsements use the phrase: caused in whole or in part by: 1.Your acts or omissions; or 2.The acts or omissions of those acting on your behalf 50 Manuscript Additional Insured Endorsements (Zurich) Owners GL Policy Our Clients GL Policy Owners GL Policy now Provides Coverage for: Owners Sole Negligence if NOT Required by Contract Negligent Acts Caused in Part by Owner BUT NOT Caused in Part by Our Client Provides Owner with Additional Insured Coverage for : Owners Vicarious Liability Negligent Acts Caused in Part by Owner and CAUSED IN PART by Our Client Owners Sole Negligence if Required by Contract 51 Manuscript Version These Endorsements use the phrase: excludes the sole negligence of the Additional Insured unless it is required by written contract 52 New Option for States of New Mexico and Oregon Owners GL Policy Our Clients GL Policy Owners GL Policy now Provides Coverage for: Owners Sole Negligence Negligent Acts Caused in Part by Owner and CAUSED IN PART by Our Client Provides Owner with Additional Insured Coverage for : Owners Vicarious Liability More Claims Shifted Back to Owners Policy 53 New Option These Endorsements use the phrase: caused by your negligence, acts or omissions or the negligence, acts or omissions of those performing operations on your behalf 54 Coverage for Negligence of the Additional Insured s What is the Impact of this new 4 th Option regarding Negligence of the Additional Insureds? 1.New Trend towards even LESS Coverage provided to the Additional Insureds. 2.This Change is being made by Statute or Case Law. 3.Other States that may follow the Trend Montana, Washington, Arizona. 55 QUESTIONS 56