Property Damage & Disaster Restoration Blog: Long Island & New York City
Several factors cited
When four top MF Global executives testified before a Congressional subcommittee on March 28 about how $1.6 billion in customer money went missing during the firm’s final days, they were accompanied by teams of lawyers. Care to guess who is paying for all that legal firepower?
As unfair as it may seem, it is the company insurance that pays, even in bankruptcy.
As virtually every large company does, MF Global bought insurance to pay for the expenses its employees might incur if they were investigated and found liable for actions taken while working for the firm. It had two policies in place at the time of its collapse into bankruptcy on Oct. 31: a “directors and officers” policy for $225 million and an “errors and omissions” policy for $150 million.
An opinion by Judge Martin Glenn of the United States Bankruptcy Court in Manhattan issued Tuesday affirmed that insurance policies bought by MF Global can be used to help pay for the lawyers for the firm’s employees, including its chief,Jon S. Corzine. Mr. Corzine and others have been named in a host of civil lawsuits, and are having to answer to several regulators trying determine whether any wrongdoing has been committed.
The judge on Tuesday noted that the employees had spent $8.3 million on legal fees so far. He authorized payment for those fees, while imposing a “soft cap” of $30 million on such expenses, which can be increased later.
Although they covered different types of conduct, MF Global’s two policies give first priority to paying for the expenses of individual employees. These are so-called wasting policies, which means that every dollar spent on paying for lawyers for the employees is one less dollar that would be available to pay a claim.
The commodity customers who lost $1.6 billion from their MF Global accounts filed a challenge in the bankruptcy court over whether the insurance policies could be tapped by the employees to pay for their lawyers. They argued that the proceeds of the insurance should be used to pay off their claims rather than going to the employees’ lawyers.
Another group involved in the case are the plaintiffs in a securities class action filed against MF Global and its officers who claim that they were defrauded by misleading statements about the company’s liquidity and internal financial controls.
Unlike the commodities customers, MF Global stockholders favored finding that the insurance policies should go to cover the expenses of the company’s officers because that would provide a larger pool of money to settle the securities case. The policies cover both legal fees and any payments made to settle claims over legal violations.
The bankruptcy trustee for MF Global, the former F.B.I. directorLouis J. Freeh, also supported the move to have the legal fees to be paid from the insurance policies. MF Global agreed to indemnify its employees for any expenses they incurred related to conduct at the firm, so having the insurers pay for the legal fees means fewer claims against the company’s remaining assets in the bankruptcy proceeding.
Judge Glenn was aware that there was a measure of unfairness in the decision, but that denying the employees the right to have their expenses covered would also be problematic. He acknowledged that many of MF Global commodities customers have faced hardships since the bankruptcy. But he also noted that the employees covered by the insurance “would suffer significant hardships if the policies were disabled.”
Some may believe that the insurance should be tapped to compensate victims, rather than officers. But as Kevin P. LaCroixwrote on the D&O Diary blog, “liability insurance exists to protect insured persons from liability, not to create a pool of money to compensate would-be claimants.”
MF Global’s two insurance policies make payment of the legal fees the first priority, and the bankruptcy judge chose to follow the terms of insurance contract.
MF Global’s two policies cover up to $375 million in liability. That sounds like a lot for legal fees but the recent experience of former executives at Lehman Brothers shows that such costs add up quickly. Lehman had $250 million in directors and officers insurance, and that amount has been almost completely exhausted through legal fees and settlements.
The legal fees for MF Global employees could quickly rise above the $30 million “soft cap” imposed by Judge Glenn if the Justice Department or the Commodity Futures Trading Commissiondecides to pursue charges. Even if a government agency settles with potential defendants, the settlement is likely to involve penalties that would be payable from the insurance policies.
Add to that the commodity customer claims for the missing $1.6 billion, and the potential liabilities can easily exceed $375 million available from the insurers.
There is a very good chance that MF Global’s insurance will not cover all the costs that arise. So in the end, the former employees — and commodity customers — may have to bear a portion of the costs.
NEW YORK, Apr 03, 2012 (BUSINESS WIRE) --
Chartis today introduced CyberEdge Tower(SM), an insurance solution that provides catastrophic network security and privacy protection. As companies struggle to balance self-insurance with the increased prospects of a material cyber event, CyberEdge Tower offers a compelling value proposition. It provides total aggregate limits of liability of up to $100 million that are structured to allow the insured to cost-effectively retain up to the first $50 million of loss. The solution will be delivered via the Chartis insurers’ market-leading Specialty Risk Protector® insurance policy.
With growing concern about catastrophic cyber security and privacy exposures, as well as the likelihood of increased regulation and enforcement, companies are proactively addressing cyber risk and insurance disclosures. The SEC’s recent Disclosure Guidance on Cybersecurity makes it clear that cybersecurity risks should be elevated from an IT department issue to a boardroom priority. Accordingly, companies are reconsidering whether they can, or should, retain all of the potential risk of a cyber incident.
“Before the CyberEdge Tower solution, companies with large cyber exposures had limited cost-effective options and were primarily self-insuring,” said Chandra Metzler, Product Line Executive, Chartis Financial Lines, U.S. and Canada.
CyberEdge Tower provides customers with the benefit of Chartis’ cutting-edge insurance solutions and unparalleled claims handling, while allowing companies to retain the cost advantage of funding their own losses.
Marty Scherzer, Head of Global Risk Solutions at Chartis, said, “Our new solution delivers an innovative insurance tool that can help companies better manage their cyber risks.”
For more information about this offering, please e-mail email@example.com, or visit http://www.chartisinsurance.com/us/cyberedge .
Chartis is a world leading property-casualty and general insurance organization serving more than 70 million clients around the world. With one of the industry’s most extensive ranges of products and services, deep claims expertise and excellent financial strength, Chartis enables its commercial and personal insurance clients alike to manage virtually any risk with confidence.
Chartis is the marketing name for the worldwide property-casualty and general insurance operations of Chartis Inc.
For additional information, please visit our website at http://www.chartisinsurance.com.
All products are written by insurance company subsidiaries or affiliates of Chartis Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language.
Non-insurance products and services may be provided by independent third parties. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.
J.D. Power and Associates Reports: Overall Customer Satisfaction with Homeowners Insurance Claims Experience Increases, Despite Record Number of Storm Losses
Amica Mutual Ranks Highest in Overall Satisfaction among Property Insurance Claimants
Customer Service Index Ranking J.D. Power.com Power Circle Ratings (Based on a 1,000-point scale) For Consumers Amica Mutual 894 5 Auto-Owners Insurance 873 4 Nationwide 872 4 Erie Insurance 864 4 CHUBB 859 4 Automobile Club of Southern California 848 4 COUNTRY 847 4 State Farm 846 4 American Family 842 4 NCNU Insurance Exchange (Formerly CSAA) 842 4 The Hartford 841 3 Safeco 835 3 Travelers 835 3 Industry Average 833 3 Allstate 829 3 Liberty Mutual 824 3 MetLife 823 3 Farmers 818 3 The Hanover 812 2 *USAA 895 5
Environmental issues and green construction have a few points of intersection in the insurance marketplace. When it comes to risk exposure, green construction techniques—new types of building materials, natural roof coverings, or even indoor water features—have raised concerns about how those components might impact mold, air quality, and other potential environmental issues.
When it comes to coverage for green construction, several environmental insurers have made options and endorsements available to cover the cost of LEED-certified upgrades connected to cleanup and restoration.
“Four to five years ago, all anyone wanted to talk about was green. We used to get calls all the time about how to price green endorsements based on the cost to retrofit commercial properties. But in the past year and a half it’s been eerily quiet,” says Steve Brewer, senior vice president of underwriting solutions at MSB, which provides pricing data for green building as part of its property-valuation solution.
The reason carriers have quit calling with questions is not because there is less interest in sustainable building. “New buildings are being built to greener standards. We are seeing an increase in renovation to green,” says Norrine Brydon, vice president of data asset and research at Marshall & Smith/Boeckh (MSB), a provider of building-cost data to the property insurance, appraisal, tax assessment, real estate and lending sectors. “There are more federal, state, and local mandates that have taken effect, such as CALGreen [the California Green Building Standards Code of 2011].”
Rather, carriers have become more comfortable with offering and pricing for the coverage. “When regulations started coming into effect, carriers had a fear of the unknown,” says Brydon. “As insurers got their heads around the changes and as green building materials and construction techniques have become more common, they became a lot less concerned about it.”
“Carriers are definitely using green endorsements as a competitive factor. They’re getting smart about what ‘green’ means—what [construction] items are heavy financial impacts and what ones aren’t,” adds Brewer. “A few years ago, it was a hot fad that everyone wanted to learn about. Now, it’s just part of how construction upgrades are done.”
Answer the following questions to help determine areas where water can get inside.
When water finds its way inside your home or busines during a hurricane, it can soak attic insulation and drywall, and cause extensive damage to other parts of the structure. This can lead to costly repairs, keep you out of your house for an extended period of time or delay the re-opening of your business following a disaster. The Insurance Institute for Business & Home Safety (IBHS) developed the following checklist to help identify areas that are the most common sources of water intrusion. With proper evaluation and maintenance, you can reduce your risk of damage.
Are there gaps around water faucet pipes where they enter the walls of the house? Find a solution.
Are there gaps around gas pipes where they enter the house? Find a solution.
Are there gaps around air conditioning pipes (white and foam covered) where they enter the house? Find a solution.
Are there any gaps around electrical outlet boxes, junction boxes, circuit breaker boxes, disconnect switches, electric meters, etc.? Find a solution.
Are there gaps between light fixtures and the face of the house? Find a solution.
Are there gaps around dryer vents, gas water heater vents, range hood vents and the house? Find a solution.
Are there cracks or voids in the mortar under the window sills? Find a solution.
Is the finished floor of the house high (at least 6 inches) above soil and mulch?Find a solution.
Are there parts of the house where water has gotten inside after heavy rains or where there has been standing water next to the house? Find a solution.
Are there penetrations of the house within 6 inches of the ground? Find a solution.