It’s All In The Fine Print: Will Your Fiduciary Insurance Cover You When You Need It?

Article by Carol Buckmann

Will that insurer your company has been paying premiums to for all of these years stand behind you if you are sued for ERISA violations?  Have you just been relying on a broker to give you the coverage you need?

I previously wrote about a decision in which CIGNA’s insurer was permitted to deny coverage for fiduciary breach due to a fraud exclusion in its policy.   We have just had another decision from an appeals court in Louisiana in which fiduciaries being sued by the U.S. Department of Labor were denied coverage under each of three separate policies they thought would provide them with legal defense costs and cover any awards assessed against them.  Again, the reason was buried in the policy fine print, which even the brokers didn’t seem to understand, if the facts set out in the decision are any indication.

The facts boil down to the following:  Plaintiffs had three policies: a D&O policy, fiduciary liability insurance and excess fiduciary coverage.  They were sued by the DOL following a formal investigation for selling stock to an ESOP at an inflated price, but the court ruled that the policies didn’t cover the plaintiffs for the following reasons:

  • The policies didn’t cover actions taken before the effective date.
  • The D&O policy didn’t cover ERISA claims at all.
  • Plaintiffs failed to give notice of the claims during the policy period, where the claim was specifically defined as including an investigation by the Department of Labor or the Pension Benefit Guaranty Corporation.
  • The excess coverage didn’t kick in until the policy limits in the basic policies had been reached (which was not possible given the court’s other rulings.)

The plaintiffs were also told that they couldn’t amend their complaint to include the brokers who they claimed were supposed to be providing them with specific coverage, but failed to do so.

No one wants to wade through the details of these policies, but those who fail to have them reviewed by legal counsel may be in for rude surprises later on.  We regularly speak with very competent  employee benefits professionals who confuse the required ERISA bonding coverage (which provides recovery to the plan, not the fiduciaries) with fiduciary liability insurance, or who think D&O policies cover their ERISA plan committee actions (many such policies either don’t cover ERISA claims at all, or don’t cover lower level committee members).  We frequently are told that a plan sponsor maintains fiduciary liability insurance, only to be sent the ERISA bond when we ask to see a copy of the policy.  In many of those cases, we have to deliver the bad news that the fiduciaries have no personal coverage at all.

Clearly, the time to review coverage and obtain any required endorsements is not when the accusations of fiduciary breach are raised.  Just a few among the points to be considered in a thorough review of coverage are the following:

  • Your broker is not a lawyer.  Don’t rely on her to interpret legal clauses in your policy. Get a qualified independent review.
  • Don’t assume that employer indemnification obligations are a substitute for coverage or will cover any gaps in coverage.  There will be legal constraints (for example, under state corporate law) on the company’s ability to provide full indemnification and the commitment may become worthless in the event of bankruptcy or other financial distress.
  • Understand the exclusions in your policy and find out whether endorsements are available to eliminate some of them.
  • Consider whether your policy limits should be increased.  Courts seem to be awarding ever increasing damages in fiduciary breach cases.
  • Understand and follow the notice requirements in your policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq

Liability Insurers: Beware Of Hasty Denials Of Coverage!

Article by Dominic Naud and Laurent Durocher-Dumais

Clyde & Co

In liability insurance matters, the control of the defence is a recurring issue before the courts.  A recent ruling of the Superior Court dealt with this issue after an insurer had denied coverage following its own investigation of the facts. This ruling may cause liability insurers to reconsider the way they handle their insureds’ files where no formal claim has yet been filed.

In this case, a house partially collapsed following work performed by a contractor. The latter quickly informed his liability insurer of a possible claim. After having conducted its own investigation of the facts, the insurer denied coverage on the basis of two exclusions.

A year later, a claim for damages was filed against the contractor. Following its analysis of the statement of claim, the liability insurer indicated that the allegations confirmed its investigation and therefore, its coverage position.

The contractor then presented a Wellington motion in order to determine whether the insurer owed a duty to defend and, if necessary, decide who would choose defence counsel: the insurer or the insured?

Having concluded that the insurer did not establish that the exclusions applied in a clear and unequivocal manner at this stage of the proceedings, the Court held that the insurer had the duty to defend its insured. The Court then considered the second issue, noting that:

[translation] “[T]he fact that an insurer had initially wrongfully refused to defend its insured does not cause it to automatically lose its right to appoint counsel and control the defence where the court subsequently orders it to defend its insured. For the insurer to lose this right, the circumstances must be such that the insured can no longer have confidence in the grounds of defence that the insurer will put forth.”

Given that the insurer justified its position on the exclusions by its own investigation of the circumstances of the accident rather than its analysis of the allegations contained in the statement of claim, the Court held that [translation] “the insured was justified in losing confidence in the defence that his insurer will now be forced to provide him following this ruling.” The insurer was thus [translation] “in a conflictual situation regarding the specific performance of its duty to defend“.

The Court therefore left the choice of attorney and the control of the defence up to the insured. It also ordered the insurer to pay the defence costs incurred to date by the insured and those to come, except for those incurred for the Wellington motion.

This decision highlights that it is in the interest of liability insurers to wait for the statement of claim before taking a final position on insurance coverage if they wish to retain control of the defence. Indeed, it seems that a denial of coverage based solely on a factual investigation before a claim is made against the insured might allow the latter to later invoke its loss of confidence in the insurer in regard to the control of the insured’s defence. It will be interesting to see if the courts find other circumstances amounting to the legitimate loss of confidence in the insurer that allow the insured to gain control of its defence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq

BC: August windstorm tops $25 million in insured damage

VANCOUVER, Oct. 6, 2015 /CNW/ – The windstorm that swept through southern British Columbia on August 29 caused over $25 million in insured damage, according to a preliminary estimate by Catastrophe Indices and Quantification Inc. (CatIQ)*.

The storm affected Metro Vancouver and surrounding areas, bringing rain and strong winds that toppled fences, trees and power lines and left hundreds of thousands without power. The storm also closed businesses and attractions, including Stanley Park and the annual Pacific National Exhibition.

“Extreme weather events, such as this one, are increasing in frequency and severity,” said Bill Adams, IBC Vice-President, Western and Pacific. “Since the late ’90s, claims payouts as a result of severe weather in British Columbia have more than doubled. The facts point to the importance of being prepared.”

Canadians, governments, businesses and the insurance industry recognize the toll that severe weather events take year after year. IBC has made adapting to severe weather a priority because it’s a phenomenon that continues to impact families and communities.

One way to be better prepared is to understand insurance coverage options, Adams explains. “Know what’s in your insurance policy and research ways to reduce your property’s vulnerability to damage. For more information, British Columbians should speak with their insurance representative or call IBC’s Consumer Information Centre at 1-844-2ask-IBC. We’re here to help.”

*Catastrophe Indices and Quantification Inc. (CatIQ) compiles and combines comprehensive insured loss amounts and related information to serve the risk management needs of the insurance and reinsurance industries.

About Insurance Bureau of Canada
Insurance Bureau of Canada (IBC) is the national industry association representing Canada’s private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.

P&C insurance touches the lives of nearly every Canadian and plays a critical role in keeping businesses safe and the Canadian economy strong. It employs more than 118,000 Canadians, pays $6.7 billion in taxes and has a total premium base of $48 billion.

For media releases and more information, visit IBC’s Media Centre at www.ibc.ca. If you have a question about home, auto or business insurance, contact IBC’s Consumer Information Centre at 1-844-2ask-IBC.

If you require more information, IBC spokespeople are available to discuss the details in this media release.

SOURCE Insurance Bureau of Canada

For further information: To schedule an interview, please contact: Celyeste Power, Manager, Media Relations, 416-362-2031 ext. 4312 (office), 647-384-9872 (after hours), cpower@ibc.ca

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