CEU.com Blog

The Deep Water Horizon disaster is seeping into nearly every corner of the Gulf Coast ecosystem and economy. Most of the blame has been placed on BP, now faced with the prospect of significant liability and litigation expenses, including at least three Shareholder Derivative Lawsuits known to date filed against BP directors and officers.

The shareholders complaints are similar. They all assert that BP directors and officers should have taken safety concerns and warning signs more seriously. They seek recovery against the BP defendants for “breach of fiduciary duty and corporate waste.” (Herman, Herman, & Grimm, 2010)

The BP scenario is a prime example of the critical need for D&O coverage. Without D&O insurance, very few people are likely even to serve on a board in this day and age. As adept as an individual may be there is still a risk.

“No entity is exempt,” says Scott Meyer, executive vice president, ACE Professional Risk, “Increasing numbers of lawsuits have been filed against private companies and charitable organizations as well. Any person who is considering a position as a director or officer of a company or charity needs to be certain D&O coverage is in place. Otherwise, they could be facing a situation where their personal assets are at stake.” (Pillsbury, 2010)

Part of the problem is that the breadth of fiduciary duty of officers and directors has grown. It used to be just the duty of loyalty and duty of care; now there is a duty of oversight. Any shareholder of a corporation has the right to bring suit against a D&O if they think the company has not acted in the best interest of the corporation. The insurance is not so much for liability but to cover the cost of litigation. Even though most corporate charters provide for indemnification for officers and directors, they often don’t have the funds for massive litigation and may not cover if the directors or officers are found wanting.

A carrier takes a claim, defends it and pays the cost of the defense. Defense can be costly– thousands and thousands of dollars, even millions, so costly that the insurance is what often keeps a company afloat.

There are three types of D&O coverage:

• Side A: Directly insures directors and officers for defense costs, settlements and judgments, not indemnified by the corporation.
• Side B: Reimburses the company indemnification payments made to its directors and officers
• Side C: Covers the company for its own liability, such as securities law claims

All coverages are included in a typical D&O insurance policy and directors and officers share this policy. “If the company’s indemnification obligations, or its separate liability, deplete the limits of insurance under the Side B and Side C coverages, the limits for individual directors and officers may be eroded, in some cases to nothing.” (Meyer, Zacharia, & Lavigne, 2010)

Because of the litigiousness of this country it has become a necessity to have insurance. Well-meaning officers and directors face a growing multiplicity of obligations and regulations that it becomes near to impossible to avoid crossing a line—even unintentionally—or, in any event, to prevent lawsuits with limited merit requiring a costly defense .

Learn more about D&O insurance by taking CEU’s online Directors and Officers Liability course.

Editors, F. (2010, August). The Deepwater Spill: Coverage Analysis . Claims .
Herman, H., Herman, T., & Grimm, M. (2010, August). Director And Officer Insurance And The Gulf Oil Spill. Retrieved August 26, 2010, from http://www.clausen.com: http://www.clausen.com/index.cfm/fa/firm_pub.article/article/1abaff03-46ad-4092-a974-7ce99b7bab0a/Director_And_Officer_Insurance_And_The_Gulf_Oil_Spill.cfm
Meyer, S., Zacharia, C. A., & Lavigne, K. (2010). Financial Crisis: Bankruptcy Implications for D&O Insurance. the ACE Group.
Pillsbury, D. (2010, August). The ABCs of D&O. Rough Notes .

You’ve heard a similar story over and over.

It is 10 o’clock at night on a Wyoming highway. A van with no headlights careens into the path of oncoming traffic killing an elderly couple on their way home from vacation. The van driver, whose blood-alcohol level is twice the legal limit, is also killed along with his two passengers.

The family of the couple killed in the accident files a lawsuit against the bar owners, whose establishments served the motorist. However, the judge dismisses the lawsuit based on a 2003 Wyoming Supreme Court ruling, which states that bar owners in Wyoming aren’t responsible for their patrons’ actions.

This is not the norm. Court decisions coupled with new state laws are holding sellers of alcoholic beverages gradually more responsible for damages and injuries resulting from a patron’s inebriated conduct.

A recent article in Rough Notes discusses the proliferation of Liquor Liability laws and the importance of insurance coverage. Despite the national sentiment towards drunk driving, there are establishments willing to risk everything because they believe they can’t afford liquor liability protection.

Attorney Scott Gemberling’s law practice focuses on liquor liability defense. He says, unlike other liability cases, liquor liability is unique because most alcohol-related cases are judged on an emotional basis.

“There are varying degrees of outcomes when one is working a medical malpractice case or a professional liability case, but all dram shop cases are tragic,” he says. “The word ‘alcohol’ exacerbates a jury verdict four or five times. The jury gets angry. It’s not like somebody broke an arm or a leg. With alcohol-related cases, usually there are multiple deaths involved.” (Zinkewicz, 2010)

Gemberling goes on to say that many lawyers are reluctant to take on alcohol-related cases because the likelihood of winning is slim to none and, in some states, where liquor liability insurance is not required, there is no “money motivation.”

The economy also has a significant impact on the liquor liability market. “When revenues are down some people decide to go without insurance,” says Chris Reisdorf of wholesaler, TAPCO Underwriters. (Zinkewicz, 2010) Generally, liquor liability comes within a package. Many companies are not willing to write stand-alone coverage. Some establishments aren’t even aware of the existence or necessity of liquor liability coverage and may not find out about it until faced with the consequences of an alcohol-related injury or death.

Learn more about Liquor Liability Coverage by taking CEU’s online Liquor Liability course.

Mirhadi, D. (2008, March 11). Small town remembers helpful couple . Retrieved July 16, 2010, from trib.com: http://trib.com/news/state-and-regional/article_fdb790f1-3c77-5838-9eb9-bd6d787a7fa5.html

Neary, B. (2010, July 13). Lawyer pledges appeal of Wyo. liquor liability law. Retrieved July 14, 2010, from businessweek.com: http://www.businessweek.com/ap/financialnews/D9GU87C80.htm

Zinkewicz, P. (2010, July). Liquor Liability. Rough Notes , 26, 28.

Beginning July 26, 2010, The Illinois Department of Insurance will implement the State-Based Systems (SBS) licensing system. SBS provides anytime, anywhere access to producer licensing information and eliminates mail, telephone and email delays. Producers will receive the following benefits from the Department’s SBS conversion:

• “Resident licensing original and renewal applications, non-resident original and renewal applications, address change requests and the attachment warehouse will be available to producers and other licensed entities on-line, all day, every day.
• Temporary licenses will be processed online.
• Approved license transactions will be loaded to SBS and viewable by the licensee online within minutes.
• Licensees and licensing administrators will have fingertip access to electronically available information, including license printing, review of continuing education (CE) transcripts, and review of any portion of the licensee summary. Licensees can also receive automatic email notifications from the Department, thus avoiding U.S. postal mailing expenses.
• The public will have free online access to information describing the status of a producer’s license.
• Licensees will no longer have to use a Social Security number as a license identification number for CE courses, online log-ins, and course lists. Instead, they will use their National Producer Number.
• CE course review features will be available online so that producers are able to search for course availability.”

During SBS implementation, electronic and paper license applications and renewals will be temporarily unavailable. “Electronic functionality will be unavailable beginning July 16, 2010, and will resume normal operations on July 26, 2010.”

The SBS transition will improve Illinois licensee services and create uniformity amongst the 20 other states that already use SBS for insurance regulation.

For more information, visit http://www.statebasedsystems.com/.

View our Illinois course catalog.

Source: Illinois Department of Insurance

Online CE just got a little easier for South Carolina producers because you no longer need a state-approved monitor for online examinations. As of May 28, 2010, the Department of Insurance changed the proctor requirements to a disinterested third party.
 
The disinterested third party cannot be a minor, a relative of the producer, an immediate supervisor/manager of the producer, or a person with an economic-or other interest-in assuring the successful outcome of the examination. A co-worker may administer the examination as long as he or she does not work on a regular basis with the producer in a marketing or sales capacity.

CEU.com utilizes a paperless proctoring process that allows proctors to enter their demographic information online. We provide the fastest way to complete your CE!

 View our South Carolina course catalog.

In a world with Wi-Fi, broadband, YouTube, and Twitter, the Insurance Industry is catching on about as fast as a dial-up connection. Only 48% of insurance agents have websites and about 20% actually keep them updated. (Thom, 2010) So why is it so easy to for insurance professionals to reconnect with old friends on Facebook but so difficult to embrace the use of social media as a marketing tool? Mostly, it’s because for many agents it seems the idea of networking is making a phone call, sending an email, shaking a hand or exchanging business cards. 

A recent article in the Insurance Journal discusses how the insurance industry isn’t quite ready for the social media revolution. Although, many companies have caught onto this powerful, cost effective, and dynamic new way of advertising and marketing, insurance providers are slow to adopt the trend.

“Having a web presence is non-negotiable,” according to Michael Larocco, president and CEO of Fireman’s Fund Insurance Companies, who was a speaker at a recent insurance education forum in California.  “Agents who adapt to the (social media) lifestyle and the needs of buyers and provide the added value of professional advice with personal relationships will not only survive, they will thrive.” (Thom, 2010)

It’s not enough just to provide information anymore; it is now all about community and connecting. There are a wide range of social media tools insurance professionals can use to become interactive:

• Facebook
  With a user population comparable to that of Indonesia, Facebook is has fast become the core component of any marketing strategy. And it’s not a tool just for teeny boppers. 55 to 65 year-old females are the fastest growing segment of users. 
• Linkedin
  Linkedin is a tool for business professionals, where members can create a personal profile, much like a resume. Linkedin offers online forums and groups for sharing information, such as new products and services.
• Twitter
  Agents can send messages, “tweets,” to “followers” providing real-time feedback, information, or announcements.
• YouTube
  Even videos have their place in the social media world; after all, the Geico caveman practically has cult-status on YouTube.

It’s up to the individual or agency to decide what tool works best for them. For some, it may be delivering information to a customer through Skype, for others it may be using Twitter as a sales tool or Facebook to educate consumers on various insurance topics. What’s important to keep in mind is that the value gained from social networking can change the way we communicate, advertise, market, manage and ultimately sell.

Start engaging in social media by connecting with CEU.com on Facebook and Twitter!

Reference: 
Thom, P.-A. (2010, May 17). Agents Aren’t Quite Ready for the Social Media Revolution. Insurance Journal , p. 12.
Morgan, R. (2010). Websites & Social Web. Retrieved June 14, 2010, from Independent Insurance Agents & Brokers of America: http://www.iiaba.net