Rolling The Dice in Uncertain Times?

Failing economy, layoffs, high unemployment have become a drumbeat these days. So how do companies react -- cut insurance costs by dropping or lowering limits on employment related paractices insurance? Wrong move.

Employees who are laid off or terminated have one outlet -- they were discriminated. Recent EEOC numbers confirm this trend.

• Discimination claims jumped 13%
• Age discrimination claims jumped 22.3%
• Retaliation claims jumped 18%

The cost:

• The average overall jury award is $252,000.
• The average settlement is $75,000.
• The employers cost of defense averages $120,000 per claim.
• If the employer loses add $200,000 the average cost for the employye's attorney.

So before you think about dropping EPL coverage or reducing your limits, think again.

Just to keep you from ignoring this advise ask your lawyer what Congress recently did regarding ADA and Fair Pay.

Will Wonders Never Cease?

Will Wonders Never Cease?

Pension Trustees are still turning a blind eye to their own personal exposure when they continue to hire consultants to perform other functions such as purchase bonds and fiduciary insurance for the funds and the Trustees. The most glaring conflict is when an actuarial firm charged with determining the financial soundness of the plans turns around and puts on another hat and becomes the agent for the insurance company. That actuary has a fiduciary duty to the plan, but also has a fiduciary duty to the insurance company and is paid by both. No one can serve two masters but many consultants sell their multiple services to a plan offering a shopping cart of services. They ignore the very essence of a fiduciary's duty – to work in the best interest of the plan instead they line their pockets in as many ways as possible.

As a plan trustee don’t fall into this trap. The consultants may be wonderful people, take you out to dinner, or play a great round of golf, but at some point if your plan is in trouble it is your personal assets that are at risk and you do not want an attorney sitting across the table asking you, “Why didn’t you engage a consultant to do so many things, where is the diversification of the services you were provided?” In other words why didn’t you have checks and balances in the advice you were being given.

Also, be leery of actuarial firms who oppose fighting to oppose disclosure of fees regulations. For example, The Segal Company wrote the Department of Labor in 2008 that they reconsider their proposed rules for disclosure; eventhouhg their own letter acknowledged that there may be prohibitions for rebating that restrict their ability to discount insurance commissions, so they do sell insurance, but do not want to disclose what they are paid. So if they say they are not receiving commissions they may be violating the law, yet they don’t want to disclose this to the same people who they owe a fiduciary duty. I don’t want to single out Segal, but actuaries and other consultants have to be sensitive to this issue, not pretend it does not exist.

More importantly, as a plan trustee you have to be careful. Do not let “one stop shopping” entice you into personal bankruptcy, and your plan not providing the benefits it should be providing.

Connecticut AG Criticizes Bailout Money for Credit Rating Firms

Connecticut Attorney General Richard Blumenthal is questioning why up to $400 million in federal bailout money is going to the big three credit rating agencies that he says helped create the economic meltdown.
Blumenthal said Monday that he is investigating why a $1 trillion government bailout program designed to unfreeze the credit markets steers money to Moody's, Fitch and Standard & Poor's and shuts out their six smaller competitors.
He said the companies may have violated antitrust laws, and he alleged they overrated toxic assets before the meltdown.
"The net result here is that up to $400 million in fees will be showered on the same ratings agencies whose mistaken ratings and inflated ratings led to the economic crisis,'' Blumenthal said. "It is another reward for failure.''
Blumenthal said he subpoenaed the companies for documents last week and asked Federal Reserve Chairman Ben Bernanke in a letter sent Monday to revise the bailout program to stop favoring the three rating agencies.
The program, created by the Federal Reserve and the Treasury Department, is called the Term Asset-Backed Securities Loan Facility.
It provides loans to big investors and companies to buy newly issued securities backed by consumer debt, stimulating lending for auto, education, credit card and other loans.
The program starts by providing up to $200 billion in financing to investors, such as hedge funds, private equity funds and mutual funds, to buy up the debt. It has the potential to generate up to $1 trillion in lending.
Blumenthal said the program requires financial institutions to have new securities rated by two or more "major nationally recognized statistical rating agencies.'' He said Moody's, Fitch and Standard & Poor's are the only raters that meet the criteria.
Spokesmen for Fitch and Standard & Poor's said they were reviewing Blumenthal's comments and would provide responses later Monday. A message was left for Moody's.
A message was also left for a Federal Reserve spokesman.
Blumenthal's new actions expand his existing antitrust investigation of the three rating agencies. He sued the firms last July, alleging they gave artificially low credit ratings to cities and towns that ultimately cost taxpayers millions of dollars in unnecessary insurance and higher interest payments.
The three firms have denied those allegations and said the lawsuit is without merit.
Blumenthal said the three agencies have become an "old boys' club'' on Wall Street and their monopoly must be broken up.
"The Fed is strengthening and entrenching the stronghold held by the Big 3,'' he said.
Securities and Exchange Commission Chairman Mary Schapiro said last month that the SEC may need to ask Congress for broader authority to supervise the Wall Street credit-rating agencies. Schapiro has suggested the SEC should explore ways to diminish the market's dependence on ratings by the big agencies. The three firms dominate the $5 billion-a-year industry.
The SEC was given new authority over them in 2006 legislation, but Schapiro has said she isn't sure whether it's enough

Misidentification Creates Problems for Insureds, Agents, Attorneys

By Beth D. BradleyApril 8, 2009
Among the issues that plague coverage lawyers and insurance agents, and especially insureds, is that of a misnamed, unnamed or mischaracterized insured. All too often in insurance policies, corporations are designated as assumed names, partnerships as individuals in corporations, or the names simply do not match the insured.

The problem is compounded when there may be several related entities, all of which are insured or intended to be insured. A related problem exists when the addresses are wrong or the insured's business is not accurately described.

These issues are also problematic for agents. As the intermediary between insurer and insured, fingers may point at the agent from either direction if there is a mistake.

Even when the named insured is correctly named, the type of entity can determine coverage. Managers of a limited liability company are insured, executive officers and directors of the corporation are insured, and spouses of partners in a partnership or joint venture are insured. If an entity is not named, it may have no coverage whatsoever. Misstating the form of an entity, be it corporation, partnership or sole proprietorship, can also lead to disastrous consequences.
For example, the policy itself provides that no coverage is included for a partnership that is not named in the declarations. Accordingly, a partnership that is misnamed as a corporation or sole proprietorship may have no coverage. And, while coverage is afforded for directors or officers of the corporation, in their individual capacity, if the corporate status is not revealed, this same coverage may not exist.

Under the standard ISO general liability form, the policy provides limited coverage for newly acquired or formed organizations, but only for 90 days unless they become named insured. Even this coverage, however, does not extend to unnamed partnerships.

A twist on these issues is created by the complaint allegation rule. If there are entities that might otherwise be entitled to coverage, they may not be if the pleadings do not match the policy names or reveal the corporate relationship.

On a related note, failure to include the proper address or addresses for the insured may also impact coverage, especially where an endorsement limits coverage to designated premises or projects.

Similarly, failure to properly describe the operation may limit coverage, if there is an endorsement for designated operations, or may lead to a claim from the insurer, if an unknown operation, for which no premium was charged, leads to coverage.

Liability policies are not the only ones impacted. Ownership of autos is another area ripe for unintended consequences under commercial auto policies, where coverage may be determined by ownership of the auto. In Houston General Ins. Co. v. Owens, 653 S.W.2d 93 (Tex. App. - Amarillo 1983, writ ref'd, n.r.e.), Ralph Owens formed a trucking company, Ralph Owens Trucking Co. Inc. The corporation engaged in the trucking business, but the trucks were owned individually by Owens. As the individually owned trucks were traded for replacements, the replacements were acquired in the corporation's name.

Although Owens testified he requested that the agent procure coverage in the names of both the corporation and Owens, individually, the primary policy was issued in the names of both entities but the umbrella policy was issued in the name of Ralph Owens only. The insured prevailed at trial, proving he had requested the coverage and establishing that the agent was acting on behalf of the insurer, but the case then proceeded to appeal.

On appeal, the court reversed, finding that while coverage existed under the umbrella based on a provision stating that any insured in the underlying was also an insured, the insured had failed to prove that the settlement was actually an amount it became legally obligated to pay because of an accident.

The entire mess likely would have been avoided had the insured been properly named in the policy.

Bradley is a partner in the Dallas law firm of Tollefson Bradley Ball & Mitchel LLP.
Editor's Note: The above is edited from an article, "What's In a Name? Or: A Rose by Any Other Name Is Not an Insured," that appeared in the March 23, 2009, edition of Insurance Journal South Central.

Job Bias Charges Hit All Time High

The U.S. Equal Employment Opportunity Commission (EEOC) announced that workplace discrimination charge filings with the federal agency nationwide soared to an unprecedented level of 95,402 during Fiscal Year (FY) 2008, which ended Sept. 30. This level is a 15 percent increase from the previous fiscal year. The FY 2008 enforcement and litigation statistics, which include trend data, are available online at http://www.eeoc.gov/stats/enforcement.html.

“The EEOC has not seen an increase of this magnitude in charges filed for many years. While we do not know if it signifies a trend, it is clear that employment discrimination remains a persistent problem,” said the Commission’s Acting Chairman, Stuart J. Ishimaru. “The EEOC is committed to vigorously enforcing federal laws prohibiting employment discrimination and will continue to invest in programs such as its systemic litigation program to maximize its effectiveness.”

According to the FY 2008 data, all major categories of charge filings in the private sector (which includes charges filed against state and local governments) increased. Charges based on age and retaliation saw the largest annual increases, while allegations based on race, sex and retaliation continued as the most frequently filed charges. The surge in charge filings may be due to multiple factors, including economic conditions, increased diversity and demographic shifts in the labor force, employees’ greater awareness of the law, EEOC’s focus on systemic litigation, and changes to EEOC’s intake practices.

The FY 2008 data also show that the EEOC filed 290 lawsuits, resolved 339 lawsuits, and resolved 81,081 private sector charges. Through its combined enforcement, mediation and litigation programs, the EEOC recovered approximately $376 million in monetary relief for thousands of discrimination victims and obtained significant remedial relief from employers to promote inclusive and discrimination-free workplaces.

D&O Costs for Financials Skyrocket

CHICAGO, March 2 /PRNewswire-FirstCall/ -- Directors' and officers' liability insurance costs for the S&P Financials Sector increased 50 percent in the fourth quarter of 2008 compared to that of 2007 according to the Quarterly D&O Pricing Index released today by Aon Corporation's (NYSE: AOC) Financial Services Group.

Time to Call a Certified Risk Manager?

Today's degenerating business circumstances have forced companies to examine their risk management programs to identify the significant risks that were minimized or overlooked. The financial free fall brought attention to six primary risks: short-term investments, financial firms, business associates, insurance providers, emerging risks, and costs. Short-term investments were revealed to carry high liquidity risks. Financial institutions neglected to limit their exposures only to their capital, entered into agreements that placed credit lines in peril, and enacted policies that placed a concentrated portion of financial risk onto individual institutions. The collapse of Bear Stearns demonstrated why businesses must pay more attention to their business-partner-related exposures and monitor the financial health of affiliated institutions. The near-collapse of American International Group pushed companies to consider alternative means of limiting exposures, such as self-insurance and captives. Sixteen months ago, businesses paid less attention to emerging risks related to changing business conditions, overall economic conditions, and governmental policies. Finally, businesses failed to garner a return-on-investment in risk management spending by drafting policies that were reactive instead of proactive in nature.

Where Were All The Investment Evaluators and Actuaries?

At the height of the Watergate scandal, Judge Scirica was reported asking, "Where were all the lawyers?" Now as we are embroiled in a financial breakdown especially of the America's pension and retirement assets, someone should start asking, "where were those experts who evaluated pension funds about their investments and the actuaries? Bernie Madoff has become a household name, investment advisors are closing shop, and pension trustees are calling lawyers and notifying their fiduciary carriers. Yet the same old crowd is out there advising pension and health and welfare funds offering "one store shopping." "Buy fiduciary insurance from us when we wear one hat, let us evaluate your investment portfolio wearing another hat, and we will also be your actuary and give you assurances of your plan's stability with your insurance carrier and to your members with another hat," they advertise. They even tell the fiduciaries they can "save them a little money if we do it all." Try telling your spouse you have to move out of your home because you saved a few bucks for the Pension Fund you used to sit on their Board.

Reports of over $1 Million dollar losses involving Bernie Madoff are common place these days. Individuals, charities, and pension funds were enticed by someone selling them something that seemed to be "to good to be true." Plan fiduciaries should be looking at those multiple hat firms with the same skepticism as if Bernie Madoff came in their office today offering them a guaranteed return on their investment. We have written for years advising to be careful of "Cowboys wearing multiple hats" regardless of where they are headquartered. As a fiduciary whose personal assets are at risk, we recommend in this time of uncertainty employ a certified risk management expert to do an evaluation of your plan from top to bottom. Listen to them and heed their advise. You will sleep better and so will your plan participants.

Footnote: The author of this is employed by Creative Risk Management and The McLaughlin Company who are both proud to say we did not have one client invest with Madoff. This footnote is more disclosure and transparency then you will ever have received from "the cowboys above described."

Bad Timing?

401(k) plan sponsors, unable to persuade employees to enter into plans in the 1980s and 1990s, were finally seeing broad participation in 2008, just before the financial markets all but collapsed. Now, employers are in the unenviable position of defending workers' investment in high-return, risky assets. According to Greenwich Associates' new U.S. Defined Contribution (DC) Pension Plan Research Study, enrollment of eligible employees into corporate 401(k) plans was 79 percent in 2008, up several percentage points from 2006. More than four out of 10 large DC programs and almost 50 percent of smaller programs automatically enroll workers into corporate 401(k) plan unless they opt out. As businesses have begun adopting automatic enrollment, they have also been changing default investment options from conservative funds to target retirement date funds that frequently expose the funds' equity to more risk. Participants in these plans are hit particularly hard by recent economic failures, as many employees have a large chunk of their personal equity--and in some cases, their total retirement savings--bound up in a DC plan.