With the recent renewal of the Terrorism Risk Insurance Act (TRIA), it seemed like a good time to look at the Management Liability and Professional Liability lines to discuss how terrorism in general can trigger coverage. While TRIA is a backstop for insurers and may not directly benefit clients from a coverage perspective, it does serve as a reminder that insurance can play a role in the recovery from terrorist events. While scenarios that trigger coverage under management and professional lines of coverage aren’t always obvious, they do exist.
Let’s start with the easiest one: Fidelity/Crime insurance. This line of coverage is written to protect an organization from the financial risk of an employee stealing money or securities belonging to the organization or its customers. There are insuring agreements that provide coverage for employee theft, theft of money from outside the premises, credit card fraud, forgery or alteration, computer fraud, wire fraud, client coverage, robbery or safe burglary, theft of money or securities, funds transfer fraud, and money orders or counterfeit currency. This is a first party coverage rather than a liability coverage. The policies will often cover forensic expenses to determine how much money or securities have been embezzled so the insurer and insured can agree on an amount to be reimbursed by the insurer. The question here is how we connect the dots between a terrorist event and employee embezzlement. An employee that is working on behalf of, or in collusion with, a terrorist group to steal funds to support that organization would trigger crime coverage because the policy does not ask why they are stealing, just have they been stealing.
Looking at D&O insurance from a terrorism perspective also has some somewhat obvious answers. D&O insurance is written to protect the directors and officers of an organization – not to mention the organization itself – from lawsuits alleging that the directors and officers have breached their fiduciary duty to the organization and its shareholders or other constituents. The insurance works in conjunction with the organization’s bylaws to protect the personal assets of the directors and officers from the liability that arises from their business decisions and leadership of the organization. How do terrorist events come into play for D&O claims and insurance? The obvious answer is that the leaders of an organization have a duty to the organization and its constituents to protect the assets and value of the organization. If the leaders have not adequately prepared for a terrorist event with a business continuity plan, including a way to protect their employees, satisfy debt obligations, or allow the organization to continue to honor its product or service commitments, that can be viewed as a failure of leadership or a breach of fiduciary duty. In essence, that is a D&O claim arising from a terrorism event. Absent an absolute terrorism exclusion, coverage may be triggered to respond to that type of mismanagement allegation.
EPL insurance is written to protect an organization from claims by employees – and sometimes third parties – alleging harassment, discrimination, wrongful termination and retaliation. Those terms are defined more broadly in the policy to include other potential wrongful acts such as negligent hiring, negligent retention, failure to promote, employment-related infliction of emotional distress and more. How do we connect wrongful acts related to the treatment of employees to external terrorist events? We can expect to see discrimination claims or wrongful termination claims following the disparate treatment or termination of an employee from a particular ethnic group if that group is somehow connected to a terrorist event. Concerned employers may terminate people of that ethnicity out of concern for their other employees, but that is still discrimination unless there is evidence the employee is connected to those activities or has other well-documented performance issues. We could also see claims arising from employees alleging negligent hiring or hostile work environment if there are employees hired or retained from an ethnic or religious group that has been involved in terrorist activities. If those employees appear supportive of the terrorist activities, the other employees may claim that retaining them is creating a hostile work environment. There are many sticky situations that can appear on an EPL policy following a terrorist event.
Fiduciary coverage is similar to professional liability insurance for employee benefit plan fiduciaries, trustees and administrators. The typical claim alleges Employee Retirement Income Security Act (ERISA) violations, imprudent investment decisions, improperly advising plan participants, delinquent contributions and mishandling of funds. A fiduciary claim could arise from investing in funds that are heavily weighted in investments that would be adversely impacted by a terrorist event, such as real estate in high risk areas. It is conceivable that the retirement plans would underperform and plan participants could be harmed. A disruption from a terrorist event could interrupt the plan contributions, withdrawals or other changes. Any of those could trigger litigation.
Professional Liability, or Errors & Omissions (E&O) coverage, is designed to cover people and organizations for claims alleging that they made an error or omission while providing a service to others. Within the broad spectrum of services that can be covered under an E&O policy, there are many types of businesses with a heightened risk of litigation following a terrorism event. For example, security guards may be accused of failing to provide adequate protection. Background checking firms may not have noticed someone’s criminal history or affiliation with hostile organizations. Mental health professionals may have not properly diagnosed someone who turned out to be a terrorist. A flight school may have skipped a background check before training someone to fly and they used that training to hijack an airline. An insurance agent can be accused of improperly insuring a large building that is destroyed by terrorists. There are many other professions that could be at the front line or surprisingly connected after a terrorist event.
This is another area where a terrorism event can trigger coverage. When a terrorist group holds hostages for ransom, K&R insurance would cover the ransom amounts, employment of consultants and negotiators, and possibly retrieval of hostages. There is even an insurer that provides evacuation services that can be used at the first sign of civil unrest, terrorist activities or even a pending storm.
In a previous edition of The Edge, we discussed the possibility of cyberliability covering some aspects of cyber-terrorism. Cyberliability covers an organization for a variety of situations involving the use or misuse of an organization’s network, website, and private data. A terrorist group may deface an organization’s website with inappropriate messages that could offend people. A terrorist group may take over a bank’s network and demand a ransom. A hostile group may use a network to inflict harm on others. They may use a network to gain access to other networks and spur litigation out of a lack of security. An organization might suffer a business interruption loss from a terrorist-sponsored hack of their network. If computer networks or communication devices are involved, cyberliability insurance might provide some solutions.
Terrorist acts by groups acting hostilely toward our country and businesses continue to occur. As they happen, we find many different ways that insurance coverage can be triggered in response to these events. It’s important to partner with a specialist in these areas of financial risk so that your clients are properly covered and prepared.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.
In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.
Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.
Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.
Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.
As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.
Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.
The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.
Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.
The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.
The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.
The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.
For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.
During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.
There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.
As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.
Public entities are facing a climate of change as the market continues to harden and insureds are faced with double-digit rate increases in property and liability. Contributing to this disruption are statute of limitation changes for sexual abuse victims, which have extended or removed the time limit for which a victim can file a claim. This article examines the impact of increased claim activity and discusses considerations that need to be made to better manage costs during this time of uncertainty.
The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.