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1 Miscellaneous Professional Liability (“MPL”) What You Need To Know What You Need To Know Thursday, October 1, 2009 Zurich N.A. Thanks to Our Host:

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Presentation on theme: "1 Miscellaneous Professional Liability (“MPL”) What You Need To Know What You Need To Know Thursday, October 1, 2009 Zurich N.A. Thanks to Our Host:"— Presentation transcript:

1 1 Miscellaneous Professional Liability (“MPL”) What You Need To Know What You Need To Know Thursday, October 1, 2009 Zurich N.A. Thanks to Our Host:

2 2 Opening and Welcome  Statement of compliance – anti-trust  CE/MCLE Credit  PLUS Membership Benefits  Makes programs like this possible  Discounts at PLUS national events  Resources through  Resources through  Local and international networking  RPLU and other industry recognition  We have a good time! WELCOMEWELCOME

3 3 Today’s Panel Moderator – Ted Doolittle, Risk Placement Services - Executive Lines Panelists: Emy Donavan – Zurich NA Kirk Denebeim – Socius Mark Russell – Gordon & Rees LLP

4 4 Our Agenda Overview of Emerging Issues and Challenges in MPL Insurance Third Party Exposure Underwriting Perspective Marketing & Sales Claims Perspective Q & A

5 5 EXAMPLES OF SERVICES COVERED BY MPL POLICIES GREEN BUILDING CONSULTANTS/CERTIFERS PHOTOGRAPHERS/EVENT PLANNERS LIFE COACHES BUSINESS MANAGERS BACKGROUND SCREENERS FIELD SERVICING PROCESS SERVERS/”REPO” PROFESSIONALS

6 6 Emerging Issues and Challenges in MPL Insurance

7 7 Emerging Issues and Challenges in MPL Specialization of previously generalized industry classes has brought with it both greater reliance upon specialized services and an expectation of increased competence in performing those services. –Driving factors include: Quickly changing, complex regulatory environment Technological advances Increased and new methods of media content distribution

8 8 Companies previously providing basic service offerings are finding themselves with new exposures, which can include: Internet Media Liability Technology Liability Security & Privacy Liability First-Party Network Risk Various state laws and other legislation have been created in response to highly publicized data breaches and resulting litigation. Such regulation is creating increased first-party costs associated with compliance in the event of a data breach Such costs are in addition to any liability incurred or fines/penalties imposed. Emerging Issues and Challenges in MPL

9 9 In 2008, the average cost of a data breach hit an average of $202 per stolen record. $139 (68.8%) of this figure is in the form of lost business. Given this figure, consider the following fictional (and simplified) example: Company A processes billing information for a number of medical offices and hospitals. In a given day, that company processes 1,000 payments for medical services. The company’s system is hacked, and the hackers take information from the company over a period of 5 days. Source:

10 10 In this example: 5 days X 1,000 records = 5,000 records potentially exposed 5,000 records X $202 average cost per record = $1,010,000 –5,000 records X $63 = $315,000 (notification costs) –5,000 records X $139 = $695,000 (lost business) Emerging Issues and Challenges in MPL

11 11 Increased reliance upon technology for providing day-to-day services has also created a significant business income threat –25% of companies experiencing IT outage between 2 and 6 days went bankrupt immediately. –Trends such as the digitization of records, outsourcing of basic HR functions, etc. can potentially expose clients and staff to release of personally identifiable data. –Everyday use of websites for advertising can create online media liability exposures, such as copyright infringement and unfair/deceptive advertising. Emerging Issues and Challenges in MPL Source: U.S. National Archives and Records Administration

12 12 Pricing and terms offered for MPL, Technology and Network risk vary widely within the marketplace- due to a number of factors: Relative youth of the line means shorter tail of reliable loss data upon which actuaries can base pricing analysis. Changing nature of litigation and regulation related to the line require flexibility in underwriting from year-to-year and account-to- account. Necessity of crafting specific “Definition of Professional Services” at the account level makes coverage forms resistant to standardization. Changes in Insured exposure associated with growth, M&A activity, joint ventures, client contract requirements, etc. can vastly alter the exposures on a particular account. Emerging Issues and Challenges in MPL

13 13 THIRD PARTY EXPOSURES TRADITIONALLY, PURCHASE OF MPL COVERAGE HAS BEEN TRIGGERED BY THIRD PARTY MANDATES PROSPECTIVE CLIENTS REQUIRE THAT PROFESSIONAL SERVICE PROVIDERS SHOW PROOF THAT PL COVERAGE IS MAINTAINED PRIOR TO EXECUTING SERVICE CONTRACTS IN A DIFFICULT ECONOMY, MANY PROFESSIONALS SEEK PROJECT-DRIVEN COVERAGE

14 14 Underwriting Perspective

15 15 Underwriting Perspective Increasingly, larger clients are pushing liability back on those from whom they receive services. Contractual language requests can include: Additional Insured (or Named Insured) Status Waiver of Subrogation Rights Increased (or Dedicated) Limits of Liability Reduced (or Aggregate) Retentions

16 16 Each such request can have a profound impact on the exposures associated with their MPL policy. –If underwriters do not carefully consider such requests, and word the coverage grant properly, they can expose the Insurer to the professional liability of the Insured’s client. –Additionally, brokers should consider whether sharing a limit with a high-risk client is in the Insured’s best interest, and should pay careful attention to the 1 v. 1 language implicated in the policy. Underwriting Perspective

17 17 Sales & Marketing Perspective MPL: Mandatory or Elective? Identifying Your Prospects Qualifying MPL Inquiries – “separating the wheat from the chafe” Tips for closing MPL sales Marketing MPL Submissions Efficiently: Doing what’s best for your client….and you

18 18 Claims Perspective

19 19 These materials are for general informational purposes only. The views expressed in this presentation are those of the author and do not necessarily reflect the views of Travelers Companies, Inc. or any of its subsidiary insurance companies (“Travelers”). This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations.

20 20 Circumstances that lead to claims The Insured was supposed to perform a service There is an alleged failure to properly perform the services  Negligent Act, Error, Omission The Policy does not require the insured’s client to be the claimant

21 21 MPL Claims Examples The Franchisor A franchisor company was sued after the purchaser of three franchise locations failed to make the amounts which were represented in the business prospectus. Plaintiff asserted the prospectus they were provided contained incomplete and inaccurate projections. The franchise owner demanded the franchise company rescind the agreement; return all purchase amounts as well as all amounts of lost revenue and attorneys’ fees. Settlement and defense expenses $800,000

22 22 MPL Claims Examples The Auctioneer An auctioneer was sued by the purchaser of a car for negligence for misreporting the model year of the car. The auctioneer sold it as a 1987 auto, but it was later determined to be a 1986 car. The plaintiff claimed compensatory damages as well as emotional distress*. At trial there was a defense verdict, but defense expenses were $125,000. * Subject to Policy Terms and Conditions

23 23 MPL Claims Examples Drug Testing A drug testing facility was sued by an individual for emotional distress* and lost wages after it was determined the facility mixed up the samples used for testing. The plaintiff’s employer placed him on unpaid leave while the facility re-tested and based on the results advised the plaintiff he may be terminated. The follow- up test was clear. Because of the stress this placed plaintiff under in the interim he sued his employer as well as the testing facility. Prior to trial, plaintiff demanded $50,000. While the jury returned a verdict in favor of the testing facility, defense expenses totaled $150,000. *Subject to Policy Terms and Conditions

24 24 MPL Claims Examples Employment Agency An employment agency was sued by a client after placing an employee in the client’s finance department. The employee was convicted of a theft at their prior employer the employment agency failed to run a full background check which would have revealed this conviction. Loss to the client was $25,000 and the defense expenses through settlement were $45,000.

25 25 An Analysis of MPL vs. D&O

26 26 D&O Policy MPL Policy While there is a potential for coverage overlap, the Policies are designed to cover different things. D&O vs. MPL (Cont.)

27 27 MPL vs. D&O MPL is designed to provide coverage to an Insured Organization and its employees for errors, omissions and misstatements regarding their professional service. For example: Breach of contract Negligent Advice Copyright infringement* Information Security* Misrepresentation (* Subject to coverage terms and conditions – Coverage for this type of claim must be specifically endorsed in the Policy.)

28 28 MPL vs. D&O (Continued) D&O is designed to provide coverage to the Directors and Officers, Organization and its employees for Wrongful Acts arising out of business decisions. For example: Bankruptcy Misappropriation of trade secrets/proprietary information (coverage extended to insured persons only) Taking of employees from competitors Tortuous Interference with a contract Breach of Fiduciary Duty Shareholder Disputes

29 29 MPL vs. D&O (Continued) An MPL Policy would provide coverage for things the D&O does not: -D&O Policies contain a breach of contract exclusion -D&O Policies often contain a professional services exclusion

30 30 Thank you for your Participation! Please visit for membership information and upcoming events.


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