Download - D&O Insurance
The FDIC and The New Banking Crisis:The FDIC and The New Banking Crisis: Litigation Challenges Past, Present, and Litigation Challenges Past, Present, and
FutureFuture
The Grand Westin, Washington, DCThe Grand Westin, Washington, DCJanuary 15-16, 2009January 15-16, 2009
Professional Liability: Insurance Coverage Professional Liability: Insurance Coverage
IssuesIssues Paul E. WojcickiPaul E. Wojcicki
[email protected]@smsm.com
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
OverviewOverview
Role of insuranceRole of insurance Current milieu Current milieu CostsCosts ForecastingForecasting
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
D&O InsuranceD&O Insurance
Need arises out of high cost of Need arises out of high cost of defending against allegations of defending against allegations of corporate wrongdoingcorporate wrongdoing
Availability of funds for Availability of funds for indemnification necessary to attract indemnification necessary to attract competent directors and officers competent directors and officers
Provides a potential source of Provides a potential source of compensation for victimscompensation for victims– Expanded to provide “entity” coverage Expanded to provide “entity” coverage
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
D&O InsuranceD&O Insurance
Absent insurance, defense costs and Absent insurance, defense costs and indemnity obligations indemnity obligations – Can drive a company to ruin Can drive a company to ruin
– Compromise a company’s ability to Compromise a company’s ability to defend itself and its directors and defend itself and its directors and officersofficers
– Deter persons from acting as directors Deter persons from acting as directors and officersand officers
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Litigation SurgeLitigation Surge
Fueled by credit crisis, subprime Fueled by credit crisis, subprime mortgage collapse, and Madoff schememortgage collapse, and Madoff scheme
Primarily directed at the financial sector Primarily directed at the financial sector Other sectors also saw an increaseOther sectors also saw an increase
– e.g., health technology 19 suits in 2006/29 e.g., health technology 19 suits in 2006/29 suits in 2008suits in 2008
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Securities LitigationSecurities Litigation
Six-year high in 2008Six-year high in 2008– Federal securities class actionsFederal securities class actions
2008: 2552008: 255
2007: 1952007: 195
2006: 1312006: 131
Credit crisis and subprime related Credit crisis and subprime related claimsclaims
110 in 2008110 in 2008
-Source: “2008 Trends in Securities Class Actions,” NERA Economics Consulting-Source: “2008 Trends in Securities Class Actions,” NERA Economics Consulting
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Securities LitigationSecurities Litigation
Increase in state filingsIncrease in state filings– difficult to trackdifficult to track
Trend likely to continue into Trend likely to continue into 20102010
Long, drawn out, and Long, drawn out, and inefficient processinefficient process
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Criminal ProceedingsCriminal Proceedings
DOJ: Prosecution of corporate crimes DOJ: Prosecution of corporate crimes a high priority a high priority
Costly to defend againstCostly to defend against
Cost to avoid an indictment can drive Cost to avoid an indictment can drive a company out of businessa company out of business
DOJ Tactics “aggressive” or DOJ Tactics “aggressive” or “abusive”“abusive”
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Criminal ProceedingsCriminal Proceedings
Cooperation credit considerationsCooperation credit considerations– Waive attorney-client and work product Waive attorney-client and work product
privilegesprivileges– Decline to indemnify personnelDecline to indemnify personnel– May not enter into a joint defense agreementMay not enter into a joint defense agreement– Produce “Category II” informationProduce “Category II” information
Non-factual attorney-client communications, legal Non-factual attorney-client communications, legal adviceadvice
– Discharge personnelDischarge personnel
Not to be considered under recently revised Not to be considered under recently revised DOJ Corporate Charging Guidelines DOJ Corporate Charging Guidelines – Emphasis now on whether a company is Emphasis now on whether a company is
forthcoming with relevant factsforthcoming with relevant facts
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Criminal ProceedingsCriminal Proceedings
Increased political pressure to Increased political pressure to restore the public trustrestore the public trust
White-collar investigations and White-collar investigations and indictments likely to increaseindictments likely to increase
Expect state officials to become Expect state officials to become more activemore active
Are “criminal proceedings” a “claim”Are “criminal proceedings” a “claim”
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Criminal ProceedingsCriminal Proceedings
Evolving definitionEvolving definition– UndefinedUndefined
– ““criminal proceeding …commenced criminal proceeding …commenced by the return of an indictment”by the return of an indictment”
– Some now include “investigations,” Some now include “investigations,” including “criminal investigations”including “criminal investigations”
– ““criminal proceedings”criminal proceedings”
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Cost IssuesCost Issues
In 2008 some insurers spent more on In 2008 some insurers spent more on professional liability claims than they professional liability claims than they received in premiumsreceived in premiums
Insurer costs likely to exceed $4.5 Insurer costs likely to exceed $4.5 billion in 2009 on subprime claims billion in 2009 on subprime claims alonealone
Carriers “are reserving pretty Carriers “are reserving pretty substantially” for professional liability substantially” for professional liability claims claims
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Madoff ScandalMadoff Scandal
Legal costs could top $1 billionLegal costs could top $1 billion– $50 billion in investor losses$50 billion in investor losses
Insurers did not anticipate or charge for the Insurers did not anticipate or charge for the possibility of investor losses on such a possibility of investor losses on such a massive scalemassive scale
– Much of the loss sustained by foreign Much of the loss sustained by foreign investorsinvestors
– The losses have just begunThe losses have just begun– $1 billion “feels a little low”$1 billion “feels a little low”
Source: Bloomberg January 9, 2009Source: Bloomberg January 9, 2009
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Insurance Industry ReactionInsurance Industry Reaction
Mid-1980’s Mid-1980’s – Number and cost of D&O claims has Number and cost of D&O claims has
grown to reach significant levelsgrown to reach significant levels
Market constrictionMarket constriction– Some insurers stopped offering coverageSome insurers stopped offering coverage
Cost containmentCost containment– Reduced limitsReduced limits– Increased PremiumsIncreased Premiums– Added exclusions and limitations Added exclusions and limitations
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Insurance Industry ReactionInsurance Industry Reaction
1999-20031999-2003– Surge in amount and cost of securities Surge in amount and cost of securities
litigationlitigation– Corporate scandals and bankruptciesCorporate scandals and bankruptcies
Enron, Adelphia, Tyco, etc.Enron, Adelphia, Tyco, etc.
– Sarbanes-Oxley ActSarbanes-Oxley Act– 9/119/11
Sharp premium increases (30% to 50% Sharp premium increases (30% to 50% annually)annually)
Market constrictedMarket constricted ““Entity” coverage droppedEntity” coverage dropped
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Differing PerspectivesDiffering Perspectives
Policyholder – InsurerPolicyholder – Insurer
Explore the differences Explore the differences
Segal McCambridge-Mondaq Segal McCambridge-Mondaq SurveySurvey– ““Timely Notice”Timely Notice”
Not expect drastic divergence of opinionNot expect drastic divergence of opinion
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Notice SurveyNotice Survey
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Notice SurveyNotice Survey
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Notice SurveyNotice Survey
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Notice SurveyNotice Survey
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Notice SurveyNotice Survey
Illinois | Maryland | Michigan | New Jersey | New York | Pennsylvania | Texas
Questions & CommentsQuestions & Comments
The FDIC and The New Banking Crisis: The FDIC and The New Banking Crisis: Litigation Challenges Past, Present, and Litigation Challenges Past, Present, and
FutureFutureWashington, DCWashington, DC
January 15-16, 2009January 15-16, 2009