As more business is transacted online and as client data is now primarily stored electronically, companies are realizing that network security and cyber liability insurance is becoming increasingly necessary.  The Wall Street Journal and Inc.com have picked up on this trend and published articles to this effect.  The Wall Street Journal’s article explains that a small business who suffers a cyber attack and has no insurance will likely go bankrupt within 6 months.  Inc.com published 6 reasons why a company should buy cyber liability coverage.

The need is easy to see, but the coverage is often opaque and confusing.  If your company is considering the purchase of cyber liability insurance, there are a number of items the firm should consider.  Because each policy form is unique, here is a list of items our clients found helpful to consider:

• Cyber insurance can provide first party and/or third party coverage.  Which does your firm need?
• Does the policy offer non-material business interruption?
• Know what the exclusions and exact policy terms state.<
• Consider how a company’s existing general liability and errors & omissions insurance coordinates with this new coverage.
• If the firm has a policy that already covers some network security, what is needed that needs to be purchased separately?
• What risk management assistance does the policy offer?
• What sublimits are on the policy for credit monitoring and notification costs?
• Does the insurance provide forensic cost reimbursement to uncover the cause of the breach and fix it?

Contact a licensed broker to discuss whether cyber liability insurance is right your your business.

A Wisconsin appellate court has upheld a trial court’s ruling that purchasing online advertising based on your competitors name is akin to opening a storefront next door – not illegal in the eyes of the state.

The law firm of Cannon & Dunphy was alleged to have purchased search engine keyword advertisements for terms including the name of Habush Habush & Rottier, a competing firm. Habush sued citing Wisconsin 995.50(2)(b) which bans using ”the name, portrait or picture of any living person” in an advertisement without that person’s written consent. The trial court ruled for the defendant and an appellate upheld the verdict.

Contact Calculated Risk Advisors today to discuss better protecting your organization from evolving advertising injury lawsuits.

The Superior Court of the State of California, Santa Barbara County has issued a coverage ruling in Cottage Health System et al. v. Travelers Casualty and Surety Co. of America et al.

The case revolved around Cottage and a group of contracted neurosurgeons who were accused of violating antitrust laws while conspiring to block a second third party physician group from practicing at the health system. As Cottage Health System’s insurance carrier Travelers initially provided defense coverage but later denied the claim.

The coverage argument centered on whether third party physicians met the definition of “insured person” under the Travelers’ Directors and Officers insurance policy. The wording, which is standard in most health care D&O policies, provided coverage to independent contractors who operated under the “exclusive direction” of the named insured. Travelers denied coverage based on the physicians not meeting that definition but lost the argument in court.

The ruling will likely be appealed and further litigation will continue to clarify coverage.

Contact Calculated Risk Advisors to discuss better protecting your organization from increasing regulatory risks and expenses.

As 2012 concludes, one factor remains important but easy to overlook – employment lawsuits. Employment law is regulated by the Equal Employment Opportunity Commission (EEOC) who manages complaints by the public and investigates or prosecutes businesses who violate federal law. The results the EEOC had in 2012 should be noted as they may indicate a trend for what to expect in 2013. In 2012, new complaints received by the EEOC totaled 111,139 (down slightly from 112,499 in 2011), while resolutions remained just below 100,000 as it has been the previous two years. However, the dollars recovered by the EEOC were the highest ever – $44.2 Million through litigation and $365.4 million through administrative enforcement. This shows that the EEOC may be pursuing larger cases on average.

While no wrongful employment practice is acceptable, it is important to understand what the EEOC may be looking at more critically. With limited resources, each company must decide how and where to invest its capital in order to best protect its firm. Knowing what the EEOC is concentrating on may help determine where to spend the extra dollar making sure it is in compliance. Based on the types of cases in 2012, Calculated Risk Advisors recommends companies to look carefully at the following areas:

• Hiring Practices – Hiring decisions based on an applicant’s record of previous arrests made a global beverages brand disqualify an unfair amount of black workers from the hiring process. The company paid over $4 million dollars to settle the matter.
• Disability Discrimination – One large trucking company had a policy of automatically terminating the employment of anyone requiring more than 12 weeks of leave. The EEOC found this to be discriminating to those with disabilities and the trucking company is paying $4.8 million to settle the matter.
• Retaliation claims – Growing in frequency, these occur when an employee complains of an unfair or wrongful practice within a company and is then harassed due to their complaint. The EEOC is increasingly pursuing these actions.

A firm should remember to include the following employment-related risk management practices in its operations:

• Use of Disparate Impact Studies – when deciding on a policy to implement, consider if the impact will be skewed towards a particular group
• Release of Liability – Upon termination, obtain a signed release of liability from employees
• Out-placement services – Assist in finding terminated employees new employement
• Avoid Blanket Policies – Broad policies are being scrutinized by the EEOC. “any prior convictions” should not be a hiring philosophy and “maximum allowed leave time” should be flexible.

For further discussion on ways to protect your company from employment practices liability, contact Calculated Risk Advisors today.

Actuaries for the University of New Mexico Hospital have told the state that they could be on the hook for $120M in claims after a likely class action suit has surfaced.

The suit brings up an often overlooked insurance issue – what is a “claim”.

Although the story says the UNM Hospital is self insured, most similar facilities have a large self insured retention with excess insurance above it. Policy language would determine whether the 101 claimants in the class action count as one claim or separate claims. The policy provisions deciding how a retention is applied is often called “batch” coverage.

If the system carried a $1M retention with excess insurance above, the most they would pay on single claim is $1M. However, if the policy counts each claimant as separate the system would be out $1M per claimant - potentially over $100M.

Many systems also carry an aggregate retention, limiting the maximum amount that can be paid out in one year. With the alleged malpractice happening over several years improper policy wording could allow different policies to respond to each of the claimants.

Contact Calculated Risk Advisors today to better understand how your policy will react in the event of a catastrophic event.

A story broke this week that Coca Cola’s systems were breached in 2009, the hackers stole information on a pending $2.4 billion acquisition of China Huiyuan Juice Group. The deal fell apartment three days later. Investors were not aware of the event until it leaked this week.

Last year the Securities and Exchange Commission issued guidance that any information about breaches that “a reasonable investor would consider important to an investment decision” should be disclosed. However, very few companies are disclosing and when they do it’s with little specifics.

Contact Calculated Risk Advisors to discuss changing regulations and the costs associated with complying.

On-shore and off-shore captives have both been uneasy over the prospect of changing regulations.

On-Shore

The Non-admitted and Reinsurance Reform Act (NRRA), a subsection of Dodd-Frank, has been keeping captive owners awake at night. The law states that no state other than the home state of an insured may require any premium tax payment for non-admitted insurance and that the placement shall be subject to the statutory and regulatory requirements of the insured’s home state as well. This is concerning for those who own a US captive, yet operate in a non-captive venue.

Off-Shore

Solvency II is meant to strengthen capital requirements for EU domiciled insurers and reinsurers, but a wider adoption is worrying captive owners.   Many offshore domiciles are implementing the guidelines to stay competitive in the world market, including two of the top captive domiciles (Bermuda and Cayman).  Bermuda has committed to the requirements while Cayman has flirted with the idea, worried about losing their edge in the captive insurance industry.  Both Bermuda and Cayman have promised to exclude captives from the requirements of Solvency II, but it is uncertain whether they can.

Contact Calculated Risk Advisors today to discuss how this regulations may impact your current and future alternative risk transfer options.

Freeman Health System in Joplin has been hit with a $9.3 million fine for violations of the Stark Law and the False Claims Act. The hospital had given incentive pay to 70 physicians in violation of federal law. This follows a $60M 2008 settlement by Missouri based Cox Medical Centers for similar allegations.

Contact Calculated Risk Advisors to discuss protecting your organization against the costs of defending against increasing government regulations and investigations.

The election is over, but for managers of risk this doesn’t solve a lot of issues.  Health care reform, unsustainable interest rates and uncertain regulations all plague those trying to predict the future.

One thing is almost certain – taxes are going up at the end of the year. The rise in tax rates is causing an unprecedented surge in mergers and acquisitions activity looking to close by year end. With M&A comes a number of risks. When looking to an insurance broker to assist in M&A activity there are several issues they can assist with.

Due Diligence – For those purchasing companies, understanding the risk you are assuming is important and buying insurance retroactively is difficult and expensive. For those selling a company, it is in your best interest to understand and explain the risks your company manages. Outsourcing insurance due diligence is common activity most funds use when looking to acquire a business.

Directors and Officers suits – Minority shareholders and debt holders often bring suits against the management of companies who sell, especially if they are distressed. Purchasing run-off D&O insurance is imperative. M&A is one of the biggest triggers of D&O suits.

Regulatory concerns – Insurance is available to cover anti-trust and other regulatory exposures. Especially in highly regulated industries like healthcare, the exposure is great.

Shareholder actions – Historically the bulk of M&A exposures, shareholder suits were the premium driver. A drop in public filings has lessened the risk. Although still an issue, it is not the foremost concern for privately held companies looking to sell by year end.

Transaction insurance – Traditionally transaction insurance has been cost prohibitive.  Today, it is increasing viable with ever-competitive insurance market pricing. Insurance can be purchased to cover representations and warranties, tax concerns and any potential liability or contingency.

Contact Calculated Risk Advisors today to discuss any plans for merger or acquisition activity, the more time you have to prepare the better you can use insurance to extract excess value from a transaction.

A CFO Magazine article this month perpetuates a widely held belief – if your insurance company fails the state will bail you out. In many cases, especially for our professional liability clients, this is not true.

1) The Limits are Not Enough
State Guarantee Funds generally provide $300k-$500k of coverage for claims made under policies of insolvent carriers and a small (generally $10,000) return premium if the carrier fails mid-policy term. This works for homeowners and small businesses, but not for large or specialty insurance policies.

2) Not Everyone Has Access to State Funds
In many cases the Guarantee Funds are not available to begin with. Many professional liability insureds have “non-admitted” coverage which is not insured by these state funds. In the event that a non-admitted insurance company goes under, the policy holders are without a back-stop.

3) Firms May be Assessed for Past Policies
Large or sophisticated companies may find insurance through Captives, Risk Retention Groups or other pooling programs not regulated by the states. If one of these entities lacks adequate capital, they have the right to assess insureds retroactively if the pooling company fails, magnifying the risk.

Contact Calculated Risk Advisors today to discuss the financial protection your insurance policy is providing. Carrier solvency is an important factor when buying an insurance policy that many insureds ignore.