Swiss Re Corporate Solutions LPL Newsletter, underwritten by Westport Insurance Corporation: Q3 2014
Featured in this edition:
Message from Milind Pandya
The law firm is dissolving and the attorneys turn to you for guidance. What are their coverage options?
Meet Theresa Walsh and Dillon Deck
Everyone needs a game plan
Swiss Re Q2 2014 financial results
As we head into fall, we again look forward to connecting with many of you at PLUS in Las Vegas. Please be sure to let your underwriter know if you will attend. We'd love to see you there.
We've enjoyed bringing you this newsletter over the past several years but realize that you likely receive many such emails and that it can, at times, seem like information overload. We're now changing our approach and this will be our last quarterly newsletter. In the future, we'll advise you of any program highlights or changes via a focused email alert: what you need to know when you need to know it. The risk management newsletter will continue to be published on a quarterly basis.
The law firm is dissolving and the attorneys turn to you for guidance. What are their coverage options?
Of course, it's always better to discuss coverage options before the firm actually dissolves, so that the attorneys can address any future issues, such as payment of a deductible, in the dissolution agreement. Even if your client appears to be stable, we suggest reminding them at each renewal to discuss any changes in the firm as they arise, whether it's a merger, dissolution or expansion into new, higher hazard areas of practice.
First, let's take a look at some definitions in the policy. The definition of "Named Insured" includes "Predecessor Firm", which is itself defined as an entity to whose financial assets and liabilities the Named Insured is the majority successor in interest. Majority is not defined but is normally deemed to be more than fifty percent (50%). Note that both assets and liabilities have to be taken on and this would include such items on a balance sheet as receivables, payables, and office rent and equipment. The policy wording specifically states financial assets and liabilities, so if just the assets have been assumed, the entity does not qualify as a predecessor firm per the definition. Similarly, if the newly-formed firm took on a majority of the attorneys associated with the past firm but did not assume responsibility for the majority of the financial assets and liabilities, the entity does not qualify as a predecessor firm. In short, do not rely on head count alone.
"Prior Firm" is a law firm where an attorney member of the firm (owner or employee) practiced before joining the Named Insured.
The cleanest way to deal with the liabilities of the dissolving firm is for the Named Insured to buy the policy-level Extended Reporting Period (ERP). This will "freeze" coverage for the firm, the owners and employees per the definitions in the policy form. Retro coverage granted under the policy will remain in place. Each new firm would then purchase a policy with a retro date for the firm and all attorneys equal to the inception date of coverage. As we know, the ERP can be an expensive proposition but this option eliminates any gray areas or uncertainties about the availability of coverage.
If a policyholder is a law firm of two attorneys and they insist they are splitting the firm “50/50”, there is no majority successor to the Named Insured and thus no predecessor firm. It would be a rare case that all assets and liabilities are split down the middle and it’s best to establish which attorney is taking the majority of the assets and liabilities so you can ensure that proper replacement coverage is obtained and the true successor in interest retains rights to the in-force policy. It may be that one attorney has the majority of the assets and the other has the majority of the liabilities and neither is the successor with rights to the current policy. If the changes are not reported promptly and replacement coverage is not obtained for an attorney who is not the successor in interest, he or she may mistakenly believe that the current policy continues to provide coverage for work done at that attorney's new firm.
Now, let's look at an example where a 15-attorney firm (Firm A) is splitting, with 10 attorneys forming one new firm (Firm B) and the other five forming a new firm (Firm C). The larger group is retaining the office space (and thus the lease and furnishings), the majority of the billings and it is the successor firm. Both entities want to retain their own prior acts coverage. This may not be possible due to a potential stacking of limits. If they don't take an ERP for Firm A, the next best option would be to recognize that Firm B has controlling rights to the current policy, including renewal rights and to write a new policy with no prior acts for Firm C. This means that Firm B's coverage will respond to claims arising from the work done by all members of Firm A. One potential difficulty arises if any of the attorneys in Firm C had coverage for work done with a "Prior Firm". Once an attorney leaves a Named Insured, the coverage for that person is limited to work done on behalf of that Named Insured. The retention of Prior Firm coverage is another argument for purchasing an ERP for Firm A.
The successor firm's limit would be exposed to claims arising from the work of the attorneys in Firm C rendered while they were part of Firm A. Further, the attorneys should come to an agreement regarding the maintenance of coverage by Firm B and memorialize that agreement in writing.
If both Firm B and Firm C purchase new policies with prior acts coverage and a claim is made arising out of work performed under Firm A, there is a potential issue with the Other Insurance clause as the policy for the successor firm may be deemed to be primary and the policy for the other firm deemed to be excess. If the limits are applied proportionately, there may be disputes over the specifics of how the limits will apply. Two deductibles will apply, versus one under a policy ERP for the dissolved firm.
When a claim or potential claim is reported and the allegations involve a past firm, our claims department will investigate the history of the Named Insured. It’s essential that the Named Insured can adequately document their history, including the transfer of assets and liabilities.
In your on-going discussions with your client, we recommend that you periodically counsel them to plan for changes in their firm structure. In the event of dissolution, remember the advantages to a policy ERP:
• One deductible in the event of a claim
• No change to retro coverage
• No cancellation of coverage or reliance on another party to maintain coverage
• Preservation of the new firm's policy limit for that firm's claims
Theresa joined Swiss Re in 2008 after spending 11 years with a local State Farm agent, handling all aspects of the agency's book of business including on-site customer visits. She is currently a Senior Associate based in our Chicago office. Theresa has worked in the insurance industry for 17 years and has held a producer's license since 1999.
Prior to joining Swiss Re in January, 2014, Dillon worked as a homeowners claims representative for Farmers Insurance, dealing with total losses due to fires, tornados and other natural disasters. She is an underwriting associate and can be found at our Overland Park, KS office.
Please describe a typical day in Business Services. Is there a typical day?
TW: You're right; there really isn't a typical day. As the expert in our systems, I train our team on our policy writing and reporting processes. I could start out my day testing a new reporting system, only to stop for an underwriter who has a problem or a question. We could then get an urgent request to issue a policy that needs to be sent out right away. We also assist administrators who have system access when they have a problem with policy issuance.
DD: We see all stages of the underwriting process. We start with the new business applications coming in the door, from application entry in our policy writing platform to policy issuance. We handle midterm endorsements and start the cycle again with renewals.
How does your past work experience help you in your current duties?
TW: My past work experience gives me a global perspective on the insurance industry and allows me to apply my skills and knowledge to anticipate the needs of my underwriters and set priorities. It's allowed me to use my teamwork and collaboration skills to facilitate open communication with my team and to leave "the door open" for change whenever it's needed.
DD: In my past role, I worked closely with a group of general field adjusters as their office adjuster. I provided them support which is similar to the support we provide to our underwriters. Also, attention to detail was very important in my past work. It's the same in my current duties and this experience allows me to be efficient and effectively support the underwriting team.
TW: We've both been able to leverage our skills from one environment to another. We interacted directly with policyholders and that customer focus still applies.
DD: Neither of us misses the sewer and drain coverage issues after big storms!
What's the best part of your job?
DD: Since I am a new member of Swiss Re, I most appreciate the challenges of learning a new business. I also look forward to the expanding my knowledge base as my prior experience is strictly property.
I enjoy implementing of new processes. Fostering the development of a process is something that requires attention and dedication. It is exciting to watch the outcome of something you have been involved with since its infancy.
TW: The best part of my job is that no day is the same. There is always something new. I'm a big believer in sharing what I know and learning new things. It keeps me on my toes and engaged. Nothing is too hard and mistakes are really opportunities to learn from and build on.
We have a weekly roundtable in our work group to discuss current issues and solutions. Many of the issues we deal with tie into our systems, from broker appointments to accounting, so questions can come from many departments.
DD: You must be the change you wish to see in the world – Gandhi
TW: People will forget what you said, people will forget what you did, but people will never forget how you made them feel - Maya Angelou
We, like every carrier, have our plan in place to ensure applications are processed as efficiently as possible. This benefits us, as we should have the least number of hand-offs on the underwriting information, and it benefits you, as your applications get to the right underwriter in the quickest route possible.
We have to perform risk clearance on every new submission. This ensures that the first-in application is properly registered. To do this, all submissions have to go into the same pipeline, in the order they are received. That pipeline starts with our processing email address: email@example.com. If you send a submission only to an individual underwriter, the only thing she can do is forward to the processing address. We understand that you may want to copy your underwriter on the email so she knows that the risk is coming her way but with vacations and business travel, sending only to an underwriter may unfortunately delay the processing of your submission. If you have a master email list for sending out submissions, please add firstname.lastname@example.org to that list.
Once the application is imaged into our online document system, our processing staff clears the risk for admitted business absent any instructions to the contrary. If you are submitting for non-admitted, please prominently add this phrase to your cover email: Please risk clear for non-admitted. The same applies for a submission that is strictly for excess. We cannot assume that you'll want our review for non-admitted if we decline in our admitted market. If you want the admitted market underwriter to refer the risk to our non-admitted underwriter automatically in the event of a declination, please let us know in your cover notes.
It's helpful to know if there are any specific coverage requests or risk-specific endorsements. Using our Transmittal Page is optimal as it has a place to insert your "need by" date. Please contact your underwriter if you need a copy of that cover sheet. Otherwise, please put your "need by" date in the subject line of your email: NEED BY DATE: XX/XX/20XX.
We need a street address to complete risk clearance so please be sure that every submission has one. If the applicant is for a new business without an office, we can use the attorney's home address and update it later.
Once the risk is cleared, our processing staff enters the application information into our policy-writing system and assigns the risk to the appropriate underwriter. To get the most accurate review, please make sure that the information is legible and complete. If you only have a renewal application for the current year, do you have the last new business application? Has the firm completed a current indication form? Either of these items can help fill in gaps. Is the retro info for the firm and all attorneys provided? Do the AOP percents total 100%? Is claim information included? We understand that there will be gaps in a new business submission when you're trying to capture the business and we are committed to working with you to secure that business. We appreciate your cooperation in starting the ball rolling with (once again!) email@example.com.
Swiss Re Group reports net income of USD 2.0 billion for the first half of 2014. All business segments contributed positively to this result in the second quarter, with strong underwriting performance by Property & Casualty Reinsurance, steady growth from Corporate Solutions and excellent gross cash generation by Admin Re®.
Michel M. Liès, Group CEO, says: "USD 2.0 billion profit in the first six months of 2014 is an impressive result. I'm especially pleased as it demonstrates our strong client relationships, and obviously translates well into shareholder value. We see the insurance market generally softening. Thanks to our leading position we continue to take advantage of opportunities as they arise – for example in high growth markets – and actively manage our overall portfolio. I am confident that Swiss Re will remain successful at every stage of the cycle."
Corporate Solutions second quarter net income was USD 66 million (vs. USD 55 million in the second quarter of 2013); net premiums earned were 22.6% up at USD 841 million with growth from most business lines.
Click here to view the full press release.
Admitted Insurance products are underwritten by Westport Insurance Corporation, a member of Swiss Re Corporate Solutions.
Non-admitted insurance products are underwritten by First Specialty Insurance Corporation, a member of Swiss Re Corporate Solutions. First Specialty is a licensed insurance company in the State of Missouri and is a non-admitted insurance company in all other states and the District of Columbia. Insurance products are available only through licensed surplus line brokers and may not be available in all states.
The intended distribution of this document is to Westport Insurance Corporations Lawyers' Professional Liability Program Administrators and brokers. The material is for general information purposes only and is not to be relied upon or used for any particular purpose. Swiss Re Corporate Solutions shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.
Certain statements and illustrations contained herein are forward-looking. See our cautionary note on forward-looking statements in the press release mentioned above.
Swiss Re Corporate Solutions offers innovative, high-quality insurance capacity to mid-sized and large multinational corporations across the globe. Our offerings range from standard risk transfer covers and multi-line programmes, to highly customised solutions tailored to the needs of our clients. Swiss Re Corporate Solutions serves customers from over 40 offices worldwide and is backed by the financial strength of the Swiss Re Group. For more information about Swiss Re Corporate Solutions, please visit: www.swissre.com/corporatesolutions.
In our ongoing efforts to improve the quality and relevance of our publications, we would like to know more about you.