New Media Exposures With Online Publishing

Companies, Unions, and Not-For- Profit Associations must be careful to avoid a host of legal pitfalls when publishing content, regardless of what medium they use to publish, that include: defamation, publicity/privacy rights violations, copyright infringement, and trade secret misappropriation.

SubPrime Litigation May Dent D&O Insurers

State Street Corp.'s (STT) decision to set aside $618 million to cover subprime litigation costs has increased concern that insurers offering policies covering such expenses could be hit with big claims from the credit crisis.
State Street said the reserve was needed to pay for lawsuits and possible settlements stemming from complaints about the fixed-income strategies managed by its State Street Global Advisors investment arm. The funds were hit by exposure to falling subprime mortgage markets and a lack of liquidity, the company explained.
State Street has insurance covering legal costs and expects to get some of the money back from claiming on the policy, Ronald Logue, chief executive of State Street, told analysts and investors during a conference call Thursday. The value of that coverage wasn't included in the reserve for accounting reasons, he added.
Logue was likely referring to directors and officers insurance. These D&O policies protect executives and members of a company's board from liability in the event of a lawsuit against them claiming wrongdoing in connection with their firm's business. The coverage usually pays for the cost of defending lawsuits, after a deductible, and also a portion of any settlement. Errors and omissions policies offer similar professional liability coverage.
Chubb Corp. (CB) and American International Group Inc. (AIG) are the biggest D&O insurers. Ace Ltd. (ACE), XL Capital Ltd. (XL), Travelers Cos. Inc. (TRV) and Hartford Financial Services Group Inc. (HIG) also offer coverage.
Some D&O insurers suffered earlier this decade after the collapse of Enron and WorldCom sparked a flurry of class-action lawsuits against companies and investment banks. But tort reform then made it more difficult to start such litigation, and the number of cases dwindled.
Almost 500 federal securities class-action lawsuits were filed in 2001, making that year by far the most active since 1995, according to Stanford Law School, which tracks such litigation. That dropped to 118 suits in 2006, the lowest in a decade.
The declines appeared on course until the middle of 2007, when litigation activity jumped as the subprime credit crisis hit: 100 companies were sued in the second half of last year. That reversed a trend of eight consecutive quarters with below average litigation, Stanford said in a study released Thursday.
The financial-services sector was hardest hit, with 47 companies sued in 2007, up from 11 in 2006, Stanford said. More than half of those suits are related to subprime market disclosure issues, the law school noted.
That could bode poorly for D&O insurers such as Chubb and AIG, but it's too early to tell how much their earnings could be dented, according to one industry analyst.
"People are starting to worry about it. But it's too early to say that we've got a problem," Paul Newsome, a managing director and insurance analyst at Sandler O'Neill & Partners, said. "If the market continues to fall and if we have more prolonged problems, we will have a lot more lawsuits and it will compound itself."
AIG spokesman Chris Winans said the company is monitoring the development of such claims, but said that, at the moment, it doesn't see any "unusual activity." A Chubb spokesman declined to comment.
It's tough to tell which D&O insurers might be exposed because companies in the business don't usually disclose which industries or specific businesses they've sold coverage to, Newsome added.
Similar concerns emerged in 2006 after the stock-option backdating scandal shook the technology industry. But claims didn't end up being very large, partly because the share prices of the companies involved didn't fall much.
"What saved the industry was the fact that stock prices didn't fall, so there weren't any losses to be recouped," Newsome said.
The subprime mortgage crisis has taken a much heftier toll on share prices though. Bank and brokerage shares have lost roughly a fifth of their value in the past year. Shares of some mortgage lenders have slumped by more than half and others have filed for bankruptcy, leaving shareholders with nothing.
Still, Newsome said the impact may not take a big bite out of the D&O businesses of insurers such as Chubb and AIG. That's because there's still a long-term, broader trend of falling securities class-action litigation. Financial-services companies may make lots of D&O claims, but overall D&O losses may remain in check, Newsome said.
"There may be losses, but results may be so good overall in the D&O business that this might not show up on the radar much," Newsome said.
-By Alistair Barr; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
01-03-08 1951ET
Copyright (c) 2008 Dow Jones & Company, Inc.- - 07 51 PM EST 01-03-08

Commercial Lines Pricing

During 2006, commercial line carriers achieved unprecedented underwriting profits, due to low combined ratios. Those stellar underwriting results, combined with a quiet hurricane season, suggest that 2007 will be another lucrative year for the property-casualty insurance sector. In addition, reserve deficiencies from prior years are now mostly financed. For profitable lines of commercial insurance, competition is mounting and is already testing major carriers' underwriting discipline. Experts predict that between 2008 and 2012, the insurance sector will experience an interval of comparative steadiness. In 2008 and the first six months of 2009, prices are expected to drop by between 5 percent and 15 percent. If price increases do commence in 2009, as per the traditional underwriting pricing cycle, the increases will be moderate, unless big catastrophe losses occur, according to analysts.

Sub-Prime Meltdown

To date, more than $170 billion has evaporated from the balance sheets of companies around the world as the result of the meltdown of the U.S. subprime mortgage market. Commercial banks and investment banks have been the hardest hit, with write-downs by Citigroup and UBS alone accounting for more than $28 billion. Losses have been nearly evenly split between U.S. and non-U.S. companies.

Identity Theft -- Are you a victim, the source, or both?

8.3 million people or almost 4% of American adults were victims of identity theft in 2005. Not suprising is that over 56% of those did not know how the information was stolen, but what is suprising is that 16% knew the thief personally. Companies can really provide a benefit to their employees at little cost by purchasing for them identity theft coverage. It is the cheepest protection an employer can buy to keep its employees productive. An employee who has had his/her identity stolen is not thinking about work.

Almost all business keep data. If your data is stolen, hacked, or destroyed more than likely you are not covered for the losses you suffered or even greater the losses the theft caused for others. Just recently Insurance companies started offering this coverage. Consult your Independent Agent or you may be more of an Indentity Theft victim than you think.

Sub-Prime Liability

The subprime mortgage crisis may lead to a surge in professional liability claims that will spread across the United States and global economies in ways that havent been seen from one event.
With past stock-options scandals and the savings-and-loan collapses of the 1970s, the lawsuits involving directors and officers or errors and omissions covers that followed were fairly tightly focused on the companies or industries involved.

But here the losses have a ripple effect that goes out through the economy as whole, because of the way these were marketed, said Bill Boeck, senior vice president of the Financial Service Group at Lockton Cos. Inc., and a lawyer with more than 20 years of experience in professional liability litigation.

In a briefing paper, Guy Carpenter & Co. said one "reason why the impact is likely to be greater than it appears is that investors may begin to file against companies not involved in subprime lending but which felt the disruption caused by the subprime mortgage market.

An example cited by Carpenter, Boeck and others is the fate of U.K. mortgage lender Northern Rock, which was not involved in subprime lending. It did heavily utilize short-term debt to fund its lending, however, and when that financing dried up in the subprime-sparked credit crunch, the company needed emergency funding from the Bank of England to stay afloat. But it lost 90% of its market value, said Guy Carpenter: The net result, of course, was litigation, with various institutional investors filing lawsuits against Northern Rocks directors.

Stanford Law Schools Securities Class Action Clearinghouse Web site listed 32 class-action lawsuits filed in relation to subprime-related issues. The companies involved run the gamut from direct mortgage companies and banks, home builders, Wall Street firms, Moodys Corp., the rating agency, and the parent of rating agency Standard and Poors, McGraw-Hill Cos.

You see the banks and lending institutions, not surprisingly, said Robert P. Hartwig, president of the Insurance Information Institute. And there are a number of suits against builders, who have been hard hit by this.

The Guy Carpenter brief predicted that more litigation is on the horizon for 2008.
The classes that appear to have the most exposure are alternative investment funds (e.g. hedge funds, private equity funds), real estate agents and mortgage brokers, said the brief. While hedge funds historically have not been large purchasers of insurance (10% to 15% of 8,000-plus funds), their increased interest in buying D&O and/or E&O, as well as the significant rate hardening on existing funds, seems to indicate that attitudes are changing.

Individual lawsuits are also blossoming, said Boeck, targeting bond insurers, appraisers and accounting firms that worked for companies directly or indirectly involved in subprime lending, and managers of 401(k) plans and pensions that lost money because of subprime investments.
There are various suits against people in the real estate industry -- anybody involved in funneling a borrower to a lender, he said.

As the subprime crisis continues to unfold, and the credit crunch and other related issues spread out in the economy, it is difficult for the industry to be sure how big the insurance impact will be. These kinds of professional liability claims trail well behind the breaking events that give rise to claims and litigation.

Hartwig noted that some investment banks and others had reported possible insured losses ranging into the low billions of dollars as the subprime mess began attracting attention earlier this year, but most have refrained from doing so of late. Theres a sense there that they dont have a lot of good information on which to base it, he said.

Boeck said that it could be a year to 18 months before the volume of litigation is understood, with three troublesome issues of securitized subprime mortgages resetting to higher payment rates between spring of 2008 and spring of 2009, and with a large number of foreclosures likely to follow.

At that point, well be outside of the blast zone, he said, but added that it could be late 09 or afterward before definitive answers are available.

A hardening of reinsurance pricing in 2008 seems unlikely, Carpenters brief said, except for insurers who are overweight in the affected sectors (e.g. home builders, subprime lenders).
An exception to the soft market, Boeck said, is companies affected by subprime issues.
The market is soft, and it is very competitive, he said. We frequently are able to negotiate premium reductions while getting enhancements. But for companies that are in the middle of all this, the negotiations can be brutal. If youre a lender involved in subprime and youve seen claims, perhaps even a securities suit, youre renewal can be an absolute nightmare. Weve seen that happen. These negotiations can be an absolute nightmare.

Some clients have been nonrenewed by insurers because of subprime problems. I wouldnt say its common, but it has happened, Boeck said.

At the end of the day, their decision is going to be motivated primarily or significantly by their feelings about the management of the company, Boeck said of the insurers. If they feel the managers of the company screwed up and may screw up again, then theyll walk.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)Copyright 2007 A.M. Best Company, Inc.