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: Slide 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 www.plusweb.org Local and
international networking RPLU and other industry recognition We
have a good time! WELCOMEWELCOME Slide 3 3 Todays Panel Moderator
Ted Doolittle, Risk Placement Services - Executive Lines Panelists:
Emy Donavan Zurich NA Kirk Denebeim Socius Mark Russell Gordon
& Rees LLP Slide 4 4 Our Agenda Overview of Emerging Issues and
Challenges in MPL Insurance Third Party Exposure Underwriting
Perspective Marketing & Sales Claims Perspective Q & A
Slide 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 Slide 6 6 Emerging Issues and
Challenges in MPL Insurance Slide 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 Slide 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
Slide 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 companys system is hacked, and the hackers take
information from the company over a period of 5 days. Source:
www.ponemon.com Slide 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 Slide 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 Slide 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 Slide 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 Slide 14
14 Underwriting Perspective Slide 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 Slide 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 Insureds client. Additionally,
brokers should consider whether sharing a limit with a high-risk
client is in the Insureds best interest, and should pay careful
attention to the 1 v. 1 language implicated in the policy.
Underwriting Perspective Slide 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
whats best for your client.and you Slide 18 18 Claims Perspective
Slide 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. Slide 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 insureds client to be the
claimant Slide 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 Slide 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
Slide 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 plaintiffs 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 Slide 24 24 MPL Claims
Examples Employment Agency An employment agency was sued by a
client after placing an employee in the clients 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. Slide 25 25
An Analysis of MPL vs. D&O Slide 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.) Slide 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.) Slide 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 Slide 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 Slide 30 30 Thank you for your Participation! Please
visit www.plusweb.org for membership information and upcoming
events.
