Wednesday, February 13, 2008
Confined Space Work Rule Upsets Small Contractors
The U.S. Occupational Safety and Health Administration extended the deadline for comments on a proposed rule for construction in confined spaces from Jan. 28 to Feb. 28 following vocal opposition from utility contractors and others in the construction industry. The proposed rules were issued unexpectedly on November 28, 2007, and establishes four classifications for confined spaces - isolated hazard, controlled atmosphere, permit required, and continuous system permit required. OSHA started work on the rule in 1993 at the behest of the construction industry; previous OSHA training and education offered little guidance. Contractors have been using the general industry standard as a result, and they say that the new classification system is confusing and that it is now unclear which category to use at particular sites. The proposed rule would also put all liability on the primary contractor and imposes onerous and costly mandates for work in trenches, manholes, and other confined spaces, say utility contractors. Ted Saito of the Engineering and Utility Contractors Association says that requirements such as early warning systems, reevaluation of procedures, and additional reassessments in the event of an emergency or ventilation failure will "cause an enormous amount of record keeping for training ... that will result in financial hardship to all employers without increasing employee safety." Another provision, that a rescue team be on standby in some cases, is cost prohibitive to smaller contractors, says George Kennedy, vice president of safety at the National Utility Contractors Association.
Wednesday, January 30, 2008
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.
Thursday, January 10, 2008
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
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.
Friday, January 04, 2008
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.
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.
Wednesday, January 02, 2008
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.
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.
Friday, December 28, 2007
Federal Terrorism Insurance Law Extended
Just five days before it was set to expire, President Bush has signed into law a seven-year extension of the federal terrorism insurance backstop.
Bush was aboard Air Force One, en route to his ranch in Crawford, Texas, when he signed the terrorism bill, along with legislation to fund the federal government and troops in Iraq.
The president did not comment on the terror bill specifically, but expressed concerns about the number and cost of earmarks in the federal budget, adding that Congress could do more to rein in government spending.
But Marc Racicot, the president of the American Insurance Association, said the reauthorization of the terrorism program, known as the Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007, was essential to maintaining the nations economic security. He said the coverage has been critical to businesses that have relied upon the program for the stability and certainty it provides the private marketplace.
The seven-year extension ... will help remove the risk, uncertainty and instability in the market and will foster long-term investment and economic growth, Racicot said.
Joseph Annotti, senior vice president of the Property Casualty Insurers Association of America, also praised the presidents action.
This seven-year extension brings unprecedented certainty and stability to the terrorism insurance market and keeps in place an extremely successful and important public/private partnership that helps commercial insurance buyers and the entire economy protect themselves from the financial devastation of a future terrorist attack.
The Terrorism Risk and Insurance Act was first enacted in 2002 in the aftermath of the Sept. 11, 2001, attacks to provide $100 billion in reinsurance capacity for terror-related commercial property/casualty risks. When the original legislation expired in 2005, Congress passed a two-year extension. The current authorization was scheduled to expire Dec. 31.
By a 360-53 margin, House members voted Dec. 18 to approve a seven-year extension of the Terrorism Risk Insurance Program (BestWire, Dec. 18, 2007). The vote followed two prior attempts by the House the first in September and the second earlier this month to authorize a long-term extension of the program. Though both efforts passed by wide margins, they each were subject to veto threats from the White House, which objected to language adding group life insurance to the backstop and lowering the program's "trigger" level, among other provisions.
In the version passed, the House took up legislation that mirrored a version passed by the Senate last month. The bill eliminates the current program's distinction between foreign and domestic acts of terrorism, but otherwise keeps the program intact under roughly its current terms through 2014.
(By David Dankwa, senior associate editor, BestWeek: David.Dankwa@ambest.com) Copyright 2007 A.M. Best Company, Inc.
Bush was aboard Air Force One, en route to his ranch in Crawford, Texas, when he signed the terrorism bill, along with legislation to fund the federal government and troops in Iraq.
The president did not comment on the terror bill specifically, but expressed concerns about the number and cost of earmarks in the federal budget, adding that Congress could do more to rein in government spending.
But Marc Racicot, the president of the American Insurance Association, said the reauthorization of the terrorism program, known as the Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007, was essential to maintaining the nations economic security. He said the coverage has been critical to businesses that have relied upon the program for the stability and certainty it provides the private marketplace.
The seven-year extension ... will help remove the risk, uncertainty and instability in the market and will foster long-term investment and economic growth, Racicot said.
Joseph Annotti, senior vice president of the Property Casualty Insurers Association of America, also praised the presidents action.
This seven-year extension brings unprecedented certainty and stability to the terrorism insurance market and keeps in place an extremely successful and important public/private partnership that helps commercial insurance buyers and the entire economy protect themselves from the financial devastation of a future terrorist attack.
The Terrorism Risk and Insurance Act was first enacted in 2002 in the aftermath of the Sept. 11, 2001, attacks to provide $100 billion in reinsurance capacity for terror-related commercial property/casualty risks. When the original legislation expired in 2005, Congress passed a two-year extension. The current authorization was scheduled to expire Dec. 31.
By a 360-53 margin, House members voted Dec. 18 to approve a seven-year extension of the Terrorism Risk Insurance Program (BestWire, Dec. 18, 2007). The vote followed two prior attempts by the House the first in September and the second earlier this month to authorize a long-term extension of the program. Though both efforts passed by wide margins, they each were subject to veto threats from the White House, which objected to language adding group life insurance to the backstop and lowering the program's "trigger" level, among other provisions.
In the version passed, the House took up legislation that mirrored a version passed by the Senate last month. The bill eliminates the current program's distinction between foreign and domestic acts of terrorism, but otherwise keeps the program intact under roughly its current terms through 2014.
(By David Dankwa, senior associate editor, BestWeek: David.Dankwa@ambest.com) Copyright 2007 A.M. Best Company, Inc.
Monday, December 10, 2007
CLAIMS NOT COVERED BY EPL POLICY
CLAIMS NOT COVERED BY EPL POLICY
We recommend that all companies purchase Employment Practices Liability insurance. If you haven’t done so, make sure to discuss this program with your broker.
However, it’s important to understand that EPLI does not cover claims involving:
Charges, audits, and claims by the Federal Contract Compliance Programs
Workers Compensation claims
Unemployment insurance claims
Disability benefits claims, including ERISA
Any breach of independent contractor services agreement
Violations of the Fair Labor Standards Act and state equivalents
Workers Adjustment and Retraining Notification Form
COBRA
OSHA
National Labor Relations Act (union claims)
US Longshoremans and Harbor Workers Compensation Act
The Jones Act
The Labor Management Relation Act
Breach of contract claims
And other exclusions
Of course, other coverages (such as Workers Compensation, Directors & Officers, and General Liability insurance) might cover some of these exposures. The point: Be very clear about which risks you have covered with which policies and which risks remain uninsured.
We recommend that all companies purchase Employment Practices Liability insurance. If you haven’t done so, make sure to discuss this program with your broker.
However, it’s important to understand that EPLI does not cover claims involving:
Charges, audits, and claims by the Federal Contract Compliance Programs
Workers Compensation claims
Unemployment insurance claims
Disability benefits claims, including ERISA
Any breach of independent contractor services agreement
Violations of the Fair Labor Standards Act and state equivalents
Workers Adjustment and Retraining Notification Form
COBRA
OSHA
National Labor Relations Act (union claims)
US Longshoremans and Harbor Workers Compensation Act
The Jones Act
The Labor Management Relation Act
Breach of contract claims
And other exclusions
Of course, other coverages (such as Workers Compensation, Directors & Officers, and General Liability insurance) might cover some of these exposures. The point: Be very clear about which risks you have covered with which policies and which risks remain uninsured.
Monday, October 08, 2007
No One is Immune
Think it cannot happen to you. "I don't need to waste money on Employment Related Practices Coverage," is said to me day after day. Well read on.
It was announced today that Sidley Austin, one of the nation's largest law firms, agreed to pay $27.5 million to 32 former partners to settle a closely watched age-discrimination lawsuit brought by the federal Equal Employment Opportunity Commission. In this case not one of the partners even filed a complaint with the EEOC. read on.
American Ballet Theater fired a trumpeter in its orchestra because it believed he was too old, the federal Equal Employment Opportunity Commission charged in an age discrimination lawsuit. The musician, Henry Nowak, was let go in 2005 at age 74, says the suit, filed on Thursday in United States District Court in Manhattan.
No one is immune. Including you.
It was announced today that Sidley Austin, one of the nation's largest law firms, agreed to pay $27.5 million to 32 former partners to settle a closely watched age-discrimination lawsuit brought by the federal Equal Employment Opportunity Commission. In this case not one of the partners even filed a complaint with the EEOC. read on.
American Ballet Theater fired a trumpeter in its orchestra because it believed he was too old, the federal Equal Employment Opportunity Commission charged in an age discrimination lawsuit. The musician, Henry Nowak, was let go in 2005 at age 74, says the suit, filed on Thursday in United States District Court in Manhattan.
No one is immune. Including you.
Wednesday, October 03, 2007
Could You Financially Survive Such a Verdict
NEW YORK_In an end to a salacious three-week trial, a jury ordered the owners of the New York Knicks to pay $11.6 million to a former team executive who allegedly endured crude insults and unwanted advances from coach Isiah Thomas.
This blog doesn't comment on the merits of the lawsuit. Despite my love of sports I ignored the articles and broadcasts, focusing on an exciting end of the regular baseball season and the beginning of college and Pro football.
This verdict caught my eye though. Time and time again, I counsel clients to consider D&O, EPL, or Union Liability Insurance to protect themselves from such a verdict and the tens of millions of attorneys fees that have been incurred and will increase through an appeal and possible retrial. The usual response is "we don't have that problem" or " we have a human resources department that takes care of those things" or " I can't afford that coverage right now."
As a risk manager, time and time again, I encourage clients to adopt procedures and give trainings on Employment Related Practices only to receive a response "we don't have the time or the money" to do that.
This blog doesn't comment on the merits of the lawsuit. Despite my love of sports I ignored the articles and broadcasts, focusing on an exciting end of the regular baseball season and the beginning of college and Pro football.
This verdict caught my eye though. Time and time again, I counsel clients to consider D&O, EPL, or Union Liability Insurance to protect themselves from such a verdict and the tens of millions of attorneys fees that have been incurred and will increase through an appeal and possible retrial. The usual response is "we don't have that problem" or " we have a human resources department that takes care of those things" or " I can't afford that coverage right now."
As a risk manager, time and time again, I encourage clients to adopt procedures and give trainings on Employment Related Practices only to receive a response "we don't have the time or the money" to do that.
Here are a few facts to consider if you have given such a response:
1. Three of five businesses will be sued this year by an employee or a former employee over an employment practice
2. Employment practices suits account for 20% of all Federal Court filings
3. 56% of all employment practice filings going to trial result in a verdict for the plaintiff employee
4. The average jury award is S250.000, with 15% exceeding $1 million
5. 33% of wrongful termination verdicts have punitive damages equal to or exceeding compensatory damage.
Today's sports headlines should represent a "wake up call." yesterday's verdict did not include punitive damages, did not include Plaintiff's attorneys fees, did not include all the attorneys fees that the defendant incurred and will incur, did not include the damage to the reputation of the Defendant's and the PR costs they will now incur to remedy.
Talk to your Independent Agent or your Certified Risk Manager. " Do not Pass Go, or someone will be collecting a lot more than $200 from your wallet."
Thursday, September 20, 2007
Servicemembers Civil Relief Act
The Servicemembers Civil Relief Act (SCRA) helps military,
reservists and National Guard members meet financial and legal obligations at home while they fulfill active-duty assignments. Though the SCRA has been active for some time, the military and the lending community still need better awareness of this law and its provisions, which can be extremely beneficial to deployed servicemembers and their families.
The SCRA requires mortgage lenders, landlords and other creditors to grant
you special status. By law, they cannot immediately foreclose on your mortgage or other loans and cannot evict you as a tenant. But that’s not all: SCRA also requires lenders to lower the interest rates you pay on existing mortgages, credit cards and personal loans. And lenders must make sure the lower interest rates translate into lower monthly payments.
Some of the SCRA’s most helpful provisions include:
Reduced interest rates and loan payments: Lenders must lower interest rates to six percent on your pre-existing home mortgages, credit cards, car loans
and other personal loans. Any interest you owe above six percent during your period of active duty will be forgiven, not just deferred.
Property protection: Lenders cannot foreclose on your home mortgage or other loans without proving legally that your military duty did not affect your ability to make payments.
Rent protection: If your rent is less than $2,465 per month, your landlord cannot evict you or your family for late payments or any reason without petitioning for a court order.
Rental/auto lease protection:
When you are deployed or relocated, you can terminate a preexisting residential or automobile lease. To terminate a lease, you generally need to give the landlord or lender 30 days written notice.
State tax support: If your spouse works and owes tax in a state other than the state of your permanent legal residence, SCRA will protect your family from double taxation. When that state determines the tax rate on your spouse’s income, they will exclude your servicemember income.
Legal postponement: If your deployment prevents you from attending court or legal meetings related to a divorce or other legal process, you can request deferral for 90 days or longer. To do so, submit a written request to the court along with a letter from your commander that explains why you cannot attend proceedings before a specified date.
In order to claim the SCRA benefits, you’ll have to request them from your lenders and provide proof of your active
status. Although most lenders comply readily when you disclose your military status, some may not be aware of the law. If you encounter any problems, contact your military legal assistance officer.
Combat Zone Protection Active-duty military personnel in combat zones receive certain tax breaks and privileges that help keep their minds on the job at hand.
As a member of the military, you are eligible for an interest-free extension to pay your income taxes because service in Iraq, Afghanistan and other locations may have seriously impaired your ability to pay or file a return. The extension lasts for the initial period of service plus six months and covers a soldier’s spouse as well, regardless of whether they file joint. or separate returns. The extension applies only to federal income taxes. Individuals serving in a combat zone as support for the U.S. armed forces, such as Red Cross workers, accredited correspondents and civilian personnel acting under the direction of the U.S. armed forces are also entitled to the extension.
Active-duty pay earned by U.S. armed forces personnel performing duties in a combat zone is not subject to federal income tax (soldiers are still obligated to pay Social Security and Medicare taxes.) Additionally, active-duty pay is not taxed in the state in which military personnel are currently stationed, only in their official home state of record. Most states exempt all or part of active-duty pay.
Calling home is also encouraged, because telephone calls placed to the United States from a combat zone by a member of the U.S. armed forces are exempt from the federal excise tax on toll telephone service. If you already paid the excise tax, you can file IRS Form 8849 to obtain a refund.
Combat zone military personnel, still under the combat extension, are eligible to make qualified contributions to an IRA for the 2006 tax year after April 16, 2007. Servicemembers who are entitled to a refund but who do not file until they return home from combat duty will receive interest on the refund amount from the IRS. However, the tax return must be filed within the six-month extension window to be eligible for the interest payment.
reservists and National Guard members meet financial and legal obligations at home while they fulfill active-duty assignments. Though the SCRA has been active for some time, the military and the lending community still need better awareness of this law and its provisions, which can be extremely beneficial to deployed servicemembers and their families.
The SCRA requires mortgage lenders, landlords and other creditors to grant
you special status. By law, they cannot immediately foreclose on your mortgage or other loans and cannot evict you as a tenant. But that’s not all: SCRA also requires lenders to lower the interest rates you pay on existing mortgages, credit cards and personal loans. And lenders must make sure the lower interest rates translate into lower monthly payments.
Some of the SCRA’s most helpful provisions include:
Reduced interest rates and loan payments: Lenders must lower interest rates to six percent on your pre-existing home mortgages, credit cards, car loans
and other personal loans. Any interest you owe above six percent during your period of active duty will be forgiven, not just deferred.
Property protection: Lenders cannot foreclose on your home mortgage or other loans without proving legally that your military duty did not affect your ability to make payments.
Rent protection: If your rent is less than $2,465 per month, your landlord cannot evict you or your family for late payments or any reason without petitioning for a court order.
Rental/auto lease protection:
When you are deployed or relocated, you can terminate a preexisting residential or automobile lease. To terminate a lease, you generally need to give the landlord or lender 30 days written notice.
State tax support: If your spouse works and owes tax in a state other than the state of your permanent legal residence, SCRA will protect your family from double taxation. When that state determines the tax rate on your spouse’s income, they will exclude your servicemember income.
Legal postponement: If your deployment prevents you from attending court or legal meetings related to a divorce or other legal process, you can request deferral for 90 days or longer. To do so, submit a written request to the court along with a letter from your commander that explains why you cannot attend proceedings before a specified date.
In order to claim the SCRA benefits, you’ll have to request them from your lenders and provide proof of your active
status. Although most lenders comply readily when you disclose your military status, some may not be aware of the law. If you encounter any problems, contact your military legal assistance officer.
Combat Zone Protection Active-duty military personnel in combat zones receive certain tax breaks and privileges that help keep their minds on the job at hand.
As a member of the military, you are eligible for an interest-free extension to pay your income taxes because service in Iraq, Afghanistan and other locations may have seriously impaired your ability to pay or file a return. The extension lasts for the initial period of service plus six months and covers a soldier’s spouse as well, regardless of whether they file joint. or separate returns. The extension applies only to federal income taxes. Individuals serving in a combat zone as support for the U.S. armed forces, such as Red Cross workers, accredited correspondents and civilian personnel acting under the direction of the U.S. armed forces are also entitled to the extension.
Active-duty pay earned by U.S. armed forces personnel performing duties in a combat zone is not subject to federal income tax (soldiers are still obligated to pay Social Security and Medicare taxes.) Additionally, active-duty pay is not taxed in the state in which military personnel are currently stationed, only in their official home state of record. Most states exempt all or part of active-duty pay.
Calling home is also encouraged, because telephone calls placed to the United States from a combat zone by a member of the U.S. armed forces are exempt from the federal excise tax on toll telephone service. If you already paid the excise tax, you can file IRS Form 8849 to obtain a refund.
Combat zone military personnel, still under the combat extension, are eligible to make qualified contributions to an IRA for the 2006 tax year after April 16, 2007. Servicemembers who are entitled to a refund but who do not file until they return home from combat duty will receive interest on the refund amount from the IRS. However, the tax return must be filed within the six-month extension window to be eligible for the interest payment.
Monday, September 17, 2007
TRIA Extension -- Global Impact
At the Les Rendez-Vous des Septembre, Munich Reinsurance Company Chairman of the Reinsurance Committee Torsten Jeworrek indicated that global governments should not rely on reinsurers to fill in capacity gaps should they decide not to back state terrorism insurance pools. Of particular concern is the German government's recent decision to not extend its 8 billion euro guarantee for the EXTREMUS Versicherung A.G. national terror insurance pool. German insurance market insiders are hopeful the German government will change its mind once the U.S. federal government extends its own terrorism insurance pool. Jeworrek said, "We will continue to make use of our flexibility and creativity to find solutions for complex risk situations. However, risk-adequate prices, terms and conditions are a prerequisite for complex risk maintaining stable income and financial strength over the long term, and in the interests of our clients, shareholders and staff." Other participants at the meeting agreed the private terrorism risk market did not have enough capacity to stave off risks related to those events without high premium levels; and in many cases, private insurance capacity for terrorism risks would be inconsistent.
Source: Business Insurance**http://www.businessinsurance.com/cgi-bin/news.pl?newsId=11066
Source: Business Insurance**http://www.businessinsurance.com/cgi-bin/news.pl?newsId=11066
More On Next Year's Premiums
TWO years of unexpectedly quiet hurricane activity in the US have caused a dramatic drop in insurance premiums that, experts say, could spark consolidation amongst brokers and underwriters.
The chief executives of the world's largest insurers and brokers are predicting cover for hurricanes in the US will tumble by at least 10pc in 2008 - on top of a 20pc slump in premiums this year.
They forecast the sharp falls as they headed out to Monaco, where they meet over the next few days to estimate demand for next year's policies. The annual Monte Carlo Rendezvous is the most important event in the industry's calendar where reinsurance companies, which provide cover to insurance businesses, unveil their demands for 2008. Insurance companies tend to pass on any premium changes to their policyholders.
Grahame Chilton, chief executive of the world's third largest reinsurance broker Benfield, said despite some major hurricanes such as Felix, this has been a benign storm season.
"In 2007, catastrophe reinsurance fell by around 5pc and insurance was off by more than 20pc,'' he said. "Without a major loss, we are expecting a reduction of between 5pc to 10pc for reinsurance and for insurance, much more.''
It is thought insurers at Lloyd's of London could reduce the maximum amount of business they can underwrite in 2008 as a result of the sharp premium falls. This could lead to total capacity at the world's largest insurance market dropping from a record level of pounds 16.1bn.
Although a quiet hurricane season could lead to record profits, a fall in prices combined with the negative impact of a weak dollar may lead to takeover activity in the sector. Mr Chilton said: "There will be further consolidation.''
He said the growth of capital markets is likely to continue, with more demand for catastrophe bonds, which give investors a generous interest rate if they take on risk. "For the first time in 2007, cat bonds were more competitive than reinsurance,'' he said.
Stephen Catlin, chief executive and deputy chairman of Catlin - the largest syndicate in Lloyd's - agreed the relationship between reinsurance and capital markets will be a major discussion point. "Some people are always quite protective of their own position,'' he said "But I think there is not enough capital in the reinsurance market to pay for the big exposures in places like Florida. As such, using the capital markets as a buffer is evidently sensible.''
The chief executives of the world's largest insurers and brokers are predicting cover for hurricanes in the US will tumble by at least 10pc in 2008 - on top of a 20pc slump in premiums this year.
They forecast the sharp falls as they headed out to Monaco, where they meet over the next few days to estimate demand for next year's policies. The annual Monte Carlo Rendezvous is the most important event in the industry's calendar where reinsurance companies, which provide cover to insurance businesses, unveil their demands for 2008. Insurance companies tend to pass on any premium changes to their policyholders.
Grahame Chilton, chief executive of the world's third largest reinsurance broker Benfield, said despite some major hurricanes such as Felix, this has been a benign storm season.
"In 2007, catastrophe reinsurance fell by around 5pc and insurance was off by more than 20pc,'' he said. "Without a major loss, we are expecting a reduction of between 5pc to 10pc for reinsurance and for insurance, much more.''
It is thought insurers at Lloyd's of London could reduce the maximum amount of business they can underwrite in 2008 as a result of the sharp premium falls. This could lead to total capacity at the world's largest insurance market dropping from a record level of pounds 16.1bn.
Although a quiet hurricane season could lead to record profits, a fall in prices combined with the negative impact of a weak dollar may lead to takeover activity in the sector. Mr Chilton said: "There will be further consolidation.''
He said the growth of capital markets is likely to continue, with more demand for catastrophe bonds, which give investors a generous interest rate if they take on risk. "For the first time in 2007, cat bonds were more competitive than reinsurance,'' he said.
Stephen Catlin, chief executive and deputy chairman of Catlin - the largest syndicate in Lloyd's - agreed the relationship between reinsurance and capital markets will be a major discussion point. "Some people are always quite protective of their own position,'' he said "But I think there is not enough capital in the reinsurance market to pay for the big exposures in places like Florida. As such, using the capital markets as a buffer is evidently sensible.''
As Reinsurance Prices Drop, Insurers More Likely To Buy
Tue Sep 11, 2007 13:48:00By Lavonne Kuykendall Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)--The price of reinsurance for U.S. exposures peaked last year in the aftermath of 2005's record storm season, but prices have dropped since and will continue to drop into the beginning of 2008.
A quiet 2006 storm season and a so-far-light U.S. hurricane season this year, along with an increase in available capital, all contributed to a stabilizing of reinsurance rates, according to insurance brokers.
As reinsurers meet this week at an annual conference in Monte Carlo, a series of reports predict falling reinsurance prices as insurers keep more risk on their own books or use catastrophe bonds or other capital markets solutions to reduce their exposure to big insurance claims.
Reinsurance is fast becoming a lower-cost alternative to catastrophe bonds, giving reinsurers an opportunity to grab more business from property/casualty insurers, after two years of seeing risk financing move away from reinsurers to capital market structures such as bonds, according to a report published this week by insurance broker Aon Corp.'s (AOC) reinsurance brokerage unit.
"We see the 2008 market cycle as an exciting and challenging one as reinsurance has the opportunity to play a larger role in capital management strategies," said Bryon Ehrhart, president and chief executive of Aon Re Services, in a Sunday press release.
Large buyers of reinsurance will still expand their use of capital markets, said Aon Re, but will use reinsurers for the majority of their risk financing, as credit market risk spreads continue to widen or become more expensive.
Barring a major catastrophic event, which could send prices back up, insurers will be more likely to use reinsurance markets than equity and debt markets, Aon Re said.
Guy Carpenter, the reinsurance brokerage unit of Marsh & McLennan Cos. (MMC), said in a report this week that the growing popularity of catastrophe bonds has helped discourage startups in the reinsurance market.
In the first half of this year, 15 catastrophe bonds with a total value of $3.2 billion have been created, and the total for the year is expected to easily surpass the total for 2006 of 20 transactions totaling $4.69 billion in risk capital.
Twelve new reinsurers were created in 2006, but only four started up in the first half of this year "as the perceived market opportunity diminished," the report said.
A Fox-Pitt Kelton Cochran Caronia Waller note estimated Tuesday that reinsurance prices will drop by between 5% and 10% for renewals that occur Jan. 1.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
(END) Dow Jones Newswires
09-11-07 1348ET
Copyright (c) 2007 Dow Jones & Company, Inc.- - 01 48 PM EDT 09-11-07 This is a real-time news story and may be updated in the near future.
CHICAGO (Dow Jones)--The price of reinsurance for U.S. exposures peaked last year in the aftermath of 2005's record storm season, but prices have dropped since and will continue to drop into the beginning of 2008.
A quiet 2006 storm season and a so-far-light U.S. hurricane season this year, along with an increase in available capital, all contributed to a stabilizing of reinsurance rates, according to insurance brokers.
As reinsurers meet this week at an annual conference in Monte Carlo, a series of reports predict falling reinsurance prices as insurers keep more risk on their own books or use catastrophe bonds or other capital markets solutions to reduce their exposure to big insurance claims.
Reinsurance is fast becoming a lower-cost alternative to catastrophe bonds, giving reinsurers an opportunity to grab more business from property/casualty insurers, after two years of seeing risk financing move away from reinsurers to capital market structures such as bonds, according to a report published this week by insurance broker Aon Corp.'s (AOC) reinsurance brokerage unit.
"We see the 2008 market cycle as an exciting and challenging one as reinsurance has the opportunity to play a larger role in capital management strategies," said Bryon Ehrhart, president and chief executive of Aon Re Services, in a Sunday press release.
Large buyers of reinsurance will still expand their use of capital markets, said Aon Re, but will use reinsurers for the majority of their risk financing, as credit market risk spreads continue to widen or become more expensive.
Barring a major catastrophic event, which could send prices back up, insurers will be more likely to use reinsurance markets than equity and debt markets, Aon Re said.
Guy Carpenter, the reinsurance brokerage unit of Marsh & McLennan Cos. (MMC), said in a report this week that the growing popularity of catastrophe bonds has helped discourage startups in the reinsurance market.
In the first half of this year, 15 catastrophe bonds with a total value of $3.2 billion have been created, and the total for the year is expected to easily surpass the total for 2006 of 20 transactions totaling $4.69 billion in risk capital.
Twelve new reinsurers were created in 2006, but only four started up in the first half of this year "as the perceived market opportunity diminished," the report said.
A Fox-Pitt Kelton Cochran Caronia Waller note estimated Tuesday that reinsurance prices will drop by between 5% and 10% for renewals that occur Jan. 1.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
(END) Dow Jones Newswires
09-11-07 1348ET
Copyright (c) 2007 Dow Jones & Company, Inc.- - 01 48 PM EDT 09-11-07 This is a real-time news story and may be updated in the near future.
Sunday, September 16, 2007
Significant Workers Comp. Change In NY
WC Policy Change Affects Insured Employers in NY
Under a new law that took effect on Sunday, September 9, insured employers who have employees in New York must provide "full" workers compensation coverage in the state, according to the state's Workers Compensation Board.Before this law was enacted, a multi-state employer could cover employees in New York under an "all states" endorsement to its workers comp policy unless the employer exceeded certain benchmarks, such as the amount of money its workers earned while in the state, stated Steve Carbone, head of education for the board's Bureau of Compliance.
With this new law, all insured employers must specifically state that they have coverage for New York workers under item 3A of a policy's information page, Mr. Carbone said. The new mandate stems from a workers comp reform law signed into law on March 13, 2007.
Mr. Carbone was unable to elaborate as to why legislators made the policy language mandatory. But he noted there have been instances of out-of-state contractors failing to adequately insure when hiring New York-based subcontractors with New York employees.Employers that are self-insured in other states, but not New York, must also comply, Mr. Carbone said. Penalties for failing to comply can add up, according Mr. Carbone.The statutory penalty for failing to comply is $1,000 for each 10 days that an employer does not have coverage. In addition, a noncompliant employer with five or fewer employees can be found guilty of a misdemeanor and fined an additional $5,000.An employer who has six or more employees can be found guilty of a felony and fined an additional $50,000. Employers without adequate workers compensation coverage can also be sued by an employee in civil court.
Under a new law that took effect on Sunday, September 9, insured employers who have employees in New York must provide "full" workers compensation coverage in the state, according to the state's Workers Compensation Board.Before this law was enacted, a multi-state employer could cover employees in New York under an "all states" endorsement to its workers comp policy unless the employer exceeded certain benchmarks, such as the amount of money its workers earned while in the state, stated Steve Carbone, head of education for the board's Bureau of Compliance.
With this new law, all insured employers must specifically state that they have coverage for New York workers under item 3A of a policy's information page, Mr. Carbone said. The new mandate stems from a workers comp reform law signed into law on March 13, 2007.
Mr. Carbone was unable to elaborate as to why legislators made the policy language mandatory. But he noted there have been instances of out-of-state contractors failing to adequately insure when hiring New York-based subcontractors with New York employees.Employers that are self-insured in other states, but not New York, must also comply, Mr. Carbone said. Penalties for failing to comply can add up, according Mr. Carbone.The statutory penalty for failing to comply is $1,000 for each 10 days that an employer does not have coverage. In addition, a noncompliant employer with five or fewer employees can be found guilty of a misdemeanor and fined an additional $5,000.An employer who has six or more employees can be found guilty of a felony and fined an additional $50,000. Employers without adequate workers compensation coverage can also be sued by an employee in civil court.
New Jersey insurance agents praised Gov. Jon Corzine for signing into law a bill that bans so-called step-down provisions in businesses' motor vehicle liability insurance policies and frees agents from a having to advise something that their insurers will not allow.
The Professional Insurance Agents of New Jersey Inc. supported the bill, S-1666/A-3038, which reverses an effect of the New Jersey Supreme Court's decision in Pinto v. New Jersey Manufacturers Insurance Co.
In the Pinto case, the court decided that step-down provisions in business auto policies, which allow insurance companies to reduce the coverage available to employees not individually named on their employer's business auto policy, are enforceable. Instead of receiving the uninsured and underinsured motorist limits stated on their employer's policy, an employee who is injured while occupying a business vehicle receives the lesser coverage limits of his own personal auto policy or that of a family member if he does not have his own policy.
The decision placed agents in an impossible situation, according to PIANJ President Jack Lynn. The ruling held that insurance producers have a duty to tell employers that if they want to avoid imposition of the step-down provision, they have to name their employees on their auto policy. However, most insurance companies will not allow employers to include employees as named insureds on a business auto policy.
"The impractical duty created by the Pinto decision had substantially increased the risk of litigation against insurance producers and placed them in an untenable position with their customers," said Lynn.
The new law eliminates the need to name employees on a business auto policy in order prevent the step-down provision. It also protects employees who are injured in work-related accidents by offering the full protections afforded under their employer's insurance policy.
The Professional Insurance Agents of New Jersey Inc. supported the bill, S-1666/A-3038, which reverses an effect of the New Jersey Supreme Court's decision in Pinto v. New Jersey Manufacturers Insurance Co.
In the Pinto case, the court decided that step-down provisions in business auto policies, which allow insurance companies to reduce the coverage available to employees not individually named on their employer's business auto policy, are enforceable. Instead of receiving the uninsured and underinsured motorist limits stated on their employer's policy, an employee who is injured while occupying a business vehicle receives the lesser coverage limits of his own personal auto policy or that of a family member if he does not have his own policy.
The decision placed agents in an impossible situation, according to PIANJ President Jack Lynn. The ruling held that insurance producers have a duty to tell employers that if they want to avoid imposition of the step-down provision, they have to name their employees on their auto policy. However, most insurance companies will not allow employers to include employees as named insureds on a business auto policy.
"The impractical duty created by the Pinto decision had substantially increased the risk of litigation against insurance producers and placed them in an untenable position with their customers," said Lynn.
The new law eliminates the need to name employees on a business auto policy in order prevent the step-down provision. It also protects employees who are injured in work-related accidents by offering the full protections afforded under their employer's insurance policy.
Market Risk
Location: New YorkAuthor: Beaumont VanceDate: Thursday, September 13, 2007
One of my favorite sources of business wisdom comes from a Sufi sage named Nasurdin. Many of his stories are applicable to risk management, probably because he was fond of pointing out where people are most blind or foolish; we just happen to be blind and foolish when it comes to risk and uncertainty.
As I read through the parade of daily articles about the current subprime meltdown, each trying to be more hysterical than the last, I am reminded of one of these famous Sufi stories. While traveling down the road one day, Nasurdin ran into a man who was depressed. The man revealed that he had suffered a long string of bad luck and, as a result, had lost everything except for the belongings he was carrying in his bag. So Nasurdin, being something of a mischievous sage, stole the man's remaining belongings and ran away down the road.
A mile ahead, Nasurdin placed the bag he had just stolen in the middle of the road, and hid in the bushes. Some time later the destitute man whom Nasurdin had robbed came upon his bag and started jumping up and down for joy. "What luck! What fantastic luck" the man exclaimed at having recovered his lost goods. Nasurdin, watching from the bushes shook his head and said, "What it takes to make some people happy!"
We often focus on our current state of loss to determine our level of happiness. If we win $100, and then lose $50, we often are unhappy, perceiving a loss. But if we lose $100, and then get it back, we are happy, perceiving a gain. Our perception of loss or gain depends not on the net result, but on how we frame it. Kahneman and Tversky devoted a great deal of time and effort to detail how framing radically changes the way we make decisions involving risk.
They showed that very often what we decide depends far more on how we frame a problem than on the actual facts. When it comes to assessing risk and probabilities, we are often fools. The subprime meltdown is a case-in-the-making for this foolishness. Of the many articles I have read in different, well-respected publications, none makes any mention of the amount of money that has been made to date on the mortgage market. None note that billions of dollars have been earned over the past years prior to the current losses. It is a grave omission; by discussing only the current loss, divorced of any reference to related past gains, the net result of the business is thoroughly obfuscated. This matters immensely in how we react to the current losses.
If a company like Goldman Sachs has earned $100 billion on mortgage backed securities over the past 5 years (I am just making this up for argument's sake) , then is a current loss of $5 Billion truly significant? Well, it is if Goldman forgets about the $100 billion and takes a highly risk averse stance. Being overly risk averse can cause as much loss as being overly risk taking.
But there is far more at stake here. Already many banks, perceiving only the downside, are pulling back their capital. Their peers, sensing that this is the right thing to do are also pulling out capital. The current mind set is "psychotic " according to Tony Crescenzi, a broker on Wall Street. The virtual cessation in trading of commercial paper has threatened to arrest the short term borrowing upon which many businesses rely to conduct operations. The effect is that of a run on the bank. When capital dries up, the economy slows and everyone loses.
Taking risks is what business is all about. Taking risks means that there will most likely be losses. If one is fortunate enough to suffer a loss of $95 for every $100 made, the net effect is still a positive cash flow. But if one forgets the gains and makes decisions based only on the losses, money can't be made. One becomes like those who endured the Great Depression and kept all of their money hidden in their mattresses.
Risk aversion can be an appropriate response. But it depends on the facts. As past sages such as Nasurdin, Kahneman and Tversky have shown us, our position on risk is often based on emotion or self deception rather than realities. This is why it is so incredibly important that specialists in risk and uncertainty (not just mathematical models, but the concepts) must be involved in strategic decision making. I fear that if we are not there to bring some sanity and logic to decision making, we will continue to get irrational exuberance followed by runs on the bank. We don't have to live this way.
One of my favorite sources of business wisdom comes from a Sufi sage named Nasurdin. Many of his stories are applicable to risk management, probably because he was fond of pointing out where people are most blind or foolish; we just happen to be blind and foolish when it comes to risk and uncertainty.
As I read through the parade of daily articles about the current subprime meltdown, each trying to be more hysterical than the last, I am reminded of one of these famous Sufi stories. While traveling down the road one day, Nasurdin ran into a man who was depressed. The man revealed that he had suffered a long string of bad luck and, as a result, had lost everything except for the belongings he was carrying in his bag. So Nasurdin, being something of a mischievous sage, stole the man's remaining belongings and ran away down the road.
A mile ahead, Nasurdin placed the bag he had just stolen in the middle of the road, and hid in the bushes. Some time later the destitute man whom Nasurdin had robbed came upon his bag and started jumping up and down for joy. "What luck! What fantastic luck" the man exclaimed at having recovered his lost goods. Nasurdin, watching from the bushes shook his head and said, "What it takes to make some people happy!"
We often focus on our current state of loss to determine our level of happiness. If we win $100, and then lose $50, we often are unhappy, perceiving a loss. But if we lose $100, and then get it back, we are happy, perceiving a gain. Our perception of loss or gain depends not on the net result, but on how we frame it. Kahneman and Tversky devoted a great deal of time and effort to detail how framing radically changes the way we make decisions involving risk.
They showed that very often what we decide depends far more on how we frame a problem than on the actual facts. When it comes to assessing risk and probabilities, we are often fools. The subprime meltdown is a case-in-the-making for this foolishness. Of the many articles I have read in different, well-respected publications, none makes any mention of the amount of money that has been made to date on the mortgage market. None note that billions of dollars have been earned over the past years prior to the current losses. It is a grave omission; by discussing only the current loss, divorced of any reference to related past gains, the net result of the business is thoroughly obfuscated. This matters immensely in how we react to the current losses.
If a company like Goldman Sachs has earned $100 billion on mortgage backed securities over the past 5 years (I am just making this up for argument's sake) , then is a current loss of $5 Billion truly significant? Well, it is if Goldman forgets about the $100 billion and takes a highly risk averse stance. Being overly risk averse can cause as much loss as being overly risk taking.
But there is far more at stake here. Already many banks, perceiving only the downside, are pulling back their capital. Their peers, sensing that this is the right thing to do are also pulling out capital. The current mind set is "psychotic " according to Tony Crescenzi, a broker on Wall Street. The virtual cessation in trading of commercial paper has threatened to arrest the short term borrowing upon which many businesses rely to conduct operations. The effect is that of a run on the bank. When capital dries up, the economy slows and everyone loses.
Taking risks is what business is all about. Taking risks means that there will most likely be losses. If one is fortunate enough to suffer a loss of $95 for every $100 made, the net effect is still a positive cash flow. But if one forgets the gains and makes decisions based only on the losses, money can't be made. One becomes like those who endured the Great Depression and kept all of their money hidden in their mattresses.
Risk aversion can be an appropriate response. But it depends on the facts. As past sages such as Nasurdin, Kahneman and Tversky have shown us, our position on risk is often based on emotion or self deception rather than realities. This is why it is so incredibly important that specialists in risk and uncertainty (not just mathematical models, but the concepts) must be involved in strategic decision making. I fear that if we are not there to bring some sanity and logic to decision making, we will continue to get irrational exuberance followed by runs on the bank. We don't have to live this way.
Monday, August 20, 2007
DOL Adopts Stricter Enforcement Initiative
In some recent audits and unofficial public statements EBSA (Employee benefits Security Administration officials have advanced a strict application of the ERISA Section 406(b)(3) provision prohibiting a fiduciary from receiving any consideration for his or her own personal account from any party dealing with a plan in connection with a transaction involving plan assets. Under this stricter application, any gift or entertainment by a current or prospective service provider for a multiemployer plan for which the recipient serves as a trustee, was deemed by EBSA to be prohibited. Apparently EBSA deemed the trustee to be receiving the gift or entertainment as a result of his or her position as a trustee to persuade the trustee regarding the affected service provider. It has been recognized for sometime that substantial amounts for entertainment or gifts to a plan fiduciary by a service provider could run afoul of the ERISA Section 406(b)(3) prohibition and in fact, there have been published cases to that effect. What appears to be developing now is a zero tolerance application of this prohibition by extending the prohibition to any item of value regardless of whether, based on the facts and circumstances, the amount is likely sufficient to persuade a fiduciary in a transaction involving plan assets. Items with a value less than the de minimis amount for LM-30 and LM-10 reporting would be prohibited under the zero tolerance application.
Many commentators on the subject of service provider entertainment have previously suggested that service providers for a plan can pay expenses for trustees which could be properly paid by the multiemployer plan such as a reasonable meal in conjunction with a Trustees' meeting. It is unclear whether the zero tolerance application extends to payments by service providers of expenses properly payable by the plan. It is also unclear what level of enforcement will be sanctioned by the EBSA for small gifts or entertainment amounts. What is clear is that some EBSA examiners have demanded that the trustees repay the amount of any meal or entertainment provided by a service provider involved plus 20% of that amount as a civil penalty. It is currently uncertain whether such a demand will be the subject of an enforcement action where the trustee refuses to reimburse the amount involved.
While the enforcement initiative appears to be focused on multiemployer plans, the rationale cited by the EBSA offices in applying the zero tolerance application would extend to any fiduciary of a plan covered by ERISA. Another thing that appears clear is that unlike the LM-30 and LM-10 reporting which is directed at Union Trustees, the zero tolerance application of ERISA section 406(b)(3) applies to all fiduciaries. Furthermore, a process that has assisted EBSA in identifying items of value provided to a trustee is the information furnished on the LM-30 and LM-10 forms.
Many commentators on the subject of service provider entertainment have previously suggested that service providers for a plan can pay expenses for trustees which could be properly paid by the multiemployer plan such as a reasonable meal in conjunction with a Trustees' meeting. It is unclear whether the zero tolerance application extends to payments by service providers of expenses properly payable by the plan. It is also unclear what level of enforcement will be sanctioned by the EBSA for small gifts or entertainment amounts. What is clear is that some EBSA examiners have demanded that the trustees repay the amount of any meal or entertainment provided by a service provider involved plus 20% of that amount as a civil penalty. It is currently uncertain whether such a demand will be the subject of an enforcement action where the trustee refuses to reimburse the amount involved.
While the enforcement initiative appears to be focused on multiemployer plans, the rationale cited by the EBSA offices in applying the zero tolerance application would extend to any fiduciary of a plan covered by ERISA. Another thing that appears clear is that unlike the LM-30 and LM-10 reporting which is directed at Union Trustees, the zero tolerance application of ERISA section 406(b)(3) applies to all fiduciaries. Furthermore, a process that has assisted EBSA in identifying items of value provided to a trustee is the information furnished on the LM-30 and LM-10 forms.
Thursday, August 02, 2007
Long Term Care Misconceptions
Misconceptions:
LTC Insurance is too expensive, the government will take care of me, I already have disability insurance, and it is only for old people.
Truth:
The average annual cost for long term care is over $70,000 and predicted to double by 2020.
Medicaid is only available for the totally impovrished.
Disability Insurance does not address health care.
In 2006, 58% of the LTC claims were made by those under 65
LTC Insurance is too expensive, the government will take care of me, I already have disability insurance, and it is only for old people.
Truth:
The average annual cost for long term care is over $70,000 and predicted to double by 2020.
Medicaid is only available for the totally impovrished.
Disability Insurance does not address health care.
In 2006, 58% of the LTC claims were made by those under 65
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