Insurance Claims And Issues

Homeowner's Associations and Condominium Associations: Professionalism, Business ... And Insurance.

      Boards of Directors of Condominium Associations, and of Homeowner's Associations and of other similar Community Associations, have a hard job.  Their many obligations and expectations are explored by Kay Senay, Forum Publishing Group, published online on Thursday, July 31, 2008 at South Florida Sun-Sentinel .com under the headline, "Board Responsibility Makes All the Difference".

     Among the responsibilties summarized there, is this one at the top of the list:  "Confirm that the association's master insurance policy is appropriate, including D&O coverage."

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To and From Each According to Their Abilities.

     The idea of underperforming corporate executives giving back some or all of their pay, in exchange for the opportunity that exists now of receiving enormous bonuses and other payments when the corporation performs well financially (and now, actually, even if it does not), has been joined by, among others, the president of a New York investment firm quoted in Gretchen Morgenson, "Fair Game/Approve This Deal, or Else" p. 1, col. 3 "SundayBusiness" Section (New York Times Nat'l Ed., Sunday June 15, 2008.

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More On "Socialized Risk, Private Gain?"

      

    In a March 21, 2008 post on Insurance Claims Bad Faith Law Blog at www.insuranceclaimsbadfaith.typepad.com, this question was asked in response to a newspaper editorial that contained the assumption that certain corporate executives would not have to disgorge allegedly ill-gotten gains:  "Why not?"

    Michael J. Missal may have an answer to that question in at least one case.  He is reportedly "a U.S. Bankruptcy Court examiner".  E. Scott Reckard, "Mortgages/Sub-prime Lender Allegedly Inflated its Profit" (Los Angeles Times Online, Thursday, March 27, 2008).   Mr. Mittal filed a Report with the Bankruptcy Court in connection with the Bankruptcy proceeding of former Mortgage Company New Century Financial Corporation.  Bonuses paid to certain former "top executives" and "senior managers" of that  company "were tied to reported financial results".  "These and other bonus payments to executives may be recovered 'under unjust enrichment and bankruptcy law theories,' he said."

    Would Directors and Officers Insurance Coverage respond in the event that such bonus payments are recovered under similar circumstances, or not?

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A.I.G. Alleges Former Officers and Directors Breached Fiduciary Duties.

    American International Group has reportedly sued other people for alleged Breach of Fiduciary Duties.  The seven defendants in the case, filed by A.I.G. in the New York State Supreme Court, are all former A.I.G. Officers and Directors including A.I.G.'s former CEO, Maurice R. Greenberg.

    In a twist, it appears that A.I.G. has alleged claims or causes of action only for alleged Breaches of Fiduciary Duties as stand-alone claims, without also alleging any other causes of action of any kind or nature.  "New A.I.G. Jab at Ex-Chief Focuses on Fiduciary Duties" p. C4, col. 4 (Reuters Report published in New York Times Nat'l Ed., Friday, March 28, 2008).

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Directors And Officers Insurance Claimed to Cover Inflated Stock Settlement.

    Directors or Officers of a corporation located in Florida reportedly assert that a nearly $7 Million settlement of a lawsuit accusing it of securities fraud involving inflated Stock prices, will cover the claim.   Richard Burnett, "Lawsuit is Settled For $7 Million/Lake Mary [Florida]-based Faro Technologies Still Denies it Misled Investors Regarding Company Information" p. C1, col. 5 "Central Florida Business" Section (Orlando Sentinel, Thurs., Feb. 28, 2008).
   
    It is unknown to this author what Insurance Company issued D & O Coverage to this particular corporation, but the tenor of this newspaper report suggests that the Insurer was involved in reaching a settlement for this amount of money, thus the assertion by the Officers or Directors of the Policyholder corporation that this settlement "would be covered."  Further, the particulars of the specific claim(s) may be among the reasons for this reported assertion of Coverage.

    An interesting and perhaps useful release about Director's and Officer's Liability Insurance Coverage and Underwriting is available on the web site of the Property and Casualty Insurers Association of America, which can be linked here.

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"Review Insurance Policies Now" Says Orlando Newspaper.

   Good advice with related links in this newspaper article published in the Orlando Sentinel, February 22, 2008, by Greg Groeller, "Review Insurance Policies Now".  Every Policyholder and their Agents and Brokers holding every kind of Insurance Policy can benefit from following the good advice published by this linked newspaper article.

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Late Loan Payments, Fewer Jobs And ... Insurance Claims More Likely.

    Late loan payments and as a result, an increasing number of defaults on all sorts of loans in the future, are major problems spreading from home payments and the prospect of ever-increasing mortgage foreclosures, to automobile loans and home equity loans.  See Jeannine Aversa, "Late Loan Payments Jump" p. C3, col. 1 (Associated Press Report published in The Orlando Sentinel, Central Florida Business, Fri., January 4, 2008).  Claims on Mortgage Insurance Policies are very likely to become increasingly greater as real estate foreclosures increase.   Credit Insurance Policies of all types increasingly seem subject to the same likely fate.

    The United States economy is also producing fewer jobs of any kind than in recent months, while the unemployment rate is increasing.  These twin factors have a potentially huge impact on future Insurance Claims.  The latest jobs numbers at the time of this post are for the month just past which at this time is December, 2007 and those numbers are, respectively, 18,000 newly made jobs of any kind, with a simultaneous unemployment rate reported at 5%.  See Peter S. Goodman & Michael M. Grynbaum, "Unemployment Sounds Warning About Economy" p. A1, col. 6 (New York Times Nat'l Ed., Sat., January 5, 2008):

As fewer jobs are created, spending power could dry up.  Faced with declining business, employers could further trim payrolls.  As unemployment grows, more homeowners could fall behind on mortgages, leading to more losses at banks, and more layoffs.

The overall figure of 18,000 newly made jobs masks a major increase of 93,000 jobs in the service industries, including the Insurance industry.  See "U.S. Economy:  Job Growth at Weakest Pace Since 2003 (Update 3)" by Bob Willis & Joe Richter (Bloomberg.com, Fri., January 4, 2008).  (Payroll counts are apparently decreased by job losses, such as a reported December decrease of 31,000 in factory payrolls reported in the same article, thus leading to an overall payroll increase of 18,000 in December.)      

    Take out the take by the American Bankers Association on these developments.  That ABA (not referring to the American Bar Association, the other ABA if you will) sponsors insurance products for its members, including automatic mutual ownership of a Reinsurance Corporation for various Lines of Insurance including Directors and Officers Liability Insurance, Financial Bond Insurance, and Employment Practices Liability Insurance.  Its views on these developments are thus instructive on Insurance implications.

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$17,500,000 For Defense, Advancing Still More For Directors and Officers.

     Defendants in an adversary proceeding filed as part of the Bankruptcy of Refco, Inc. argue that their Director's and Officer's Carrier, Axis Reinsurance, should cover the $17,500,000.00 of defense costs to date and advance them the money for past and future lawyer fees and costs.  They won in a ruling delivered at a Hearing scheduled in the case for Friday, October 12, 2007 at 10:00 A.M.:  Axis Reinsurance Co. v. Phillip R. Bennett, et al. (In re Refco, Inc.)(S.D.N.Y. Bankr. Case No. 05.60006, Adv. Proc. No. 07.01712).  No official written decision has been posted online, but when it becomes available it will be posted here for easy accessibility.

     Here is Axis Reinsurance's brief and general description of its Director's and Officer's Insurance Coverage in its own words on its web site (see "D&O" mentioned under "Professional Liability").

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D&O Insurance Companies Feel the Heat of Climate Change.........

     .... And Soon Their D&O Policyholders May Feel the Heat Too.
    Writers of D&O Insurance Coverage Sweat Out D&O Liability Claims 
                              Based on Effects of Climate Change.

   
     This potential exposure surfaces in ever-increasing numbers of articles and news reports made available in particular to the Insurance industry.  See, for example, Meg Green, "D&O Heats Up/Directors & Officers Writers Are Paying Close Attention to the Issue of Climate Change -- Not Just How it Could Affect Earth, But How it Could Impact Regulations and Ultimately Lead to Future Litigation and Claims," 108 Best's Review 24 (August 2007) (subscription required for print edition), link here for subscription-required ONLINE edition; "Climate-Change Exposures Mount in Directors & Officers Line," BEST'S REVIEW (July 30, 2007; online subscription required).

     A significant measure of the Insurance industry's growing understanding of the risks inherent in climate change is in the behavior of leading Insurance Companies.  The Hartford Financial Services Group, Inc. and Prudential Financial, Inc. are two leading Groups of Insurance Companies.  They both recently agreed with Calvert, a mutual fund and one of their investors, to "improve their public reporting and disclosure regarding the potential financial risks they face from climate change and strategies for mitigating those risks."  Calvert then withdrew its climate change shareholder resolutions filed with both Insurance Companies, before the resolutions came to a vote of all the shareholders who could vote on the respective resolutions.  Calvert Press Release, "Insurance Companies Commit to Climate Change Disclosure" (April 10, 2007).

     If the Insurance Industry anticipates and expects D&O Claims to be made because of climate change, and expects that D&O Claims made on the basis of climate change will thereafter spiral higher and higher, then Claims to Coverage and Damages under D&O Coverage will not only soon be made but will result in mounting numbers of Claims in Suit.  Those lawsuits will be reported here and they will also be made available here whenever possible via online links, together with Insurance Coverage analysis of the reality of this exposure if, when and as the anticipated exposure becomes reality.

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Due Process Denied? Directors and Officers Dismissed.

     Where a Federal Judge ruled that Due Process was denied them, Directors and Officers have been dismissed as defendants in a criminal prosecution.  This chapter of the story is told by Lynnley Browning, "Charges Dropped Against 13 in KPMG Tax-Shelter Case" (New York Times Online, Tuesday, July 17, 2007).   Previous chapters are told here, for example, in posts on May 25, June 10, June 12, June 26, and July 3, 2007.  The effects on many potential Director's and Officer's Insurance Coverage Issues surfaced many times in that case and they are addressed in the posts here.

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