Theory vs. Reality: Does Default Insurance deliver a better claims process and result?

Willis Construction Risk Management ConferenceNew Orleans - September 11, 2013

Bill Noonan, VP of Risk Management at StructureToneDavid Dekker | Pillsbury Winthrop Shaw Pittman LLPLuke Nolan, SVP WillisBrian Carpenter, SVP Willis

AGENDA1. Claims Comparison2. Notice of Default3. Proof of Loss4. Proof of Loss Administration of Claim5. Payment of Claims6. Subrogation

3

DefaultInsurance

Carrier

Premium

Traditional Surety

Three Party Surety Relationship

Default Insurance

Subrogation

Subcontract rights

GeneralContractor

Policy

S

ubco

ntra

ct

Two Party Insurance Relationship

Claim PMT.

General Contractor

S

ubco

ntra

ct

Bond

Surety forSubcontractor

Premium

Indemnity

DefaultInsurance

Carrier

Subrogation

Subcontract rights

GeneralContractor

Policy

S

ubco

ntra

ct

Two Party Insurance Relationship

Default Insurance

Proof of Loss

Proof of L

oss

Claims ComparisonZurich Arch XL

Loss Trigger Default Termination Default

Claims Handling In-house TPA In-house

Notice of Loss 180 days (30 days)

180 days5 days waive co-pay

30 days

Claims Reporting Earlier of 10 years or statute

Earlier of 5 years or statute (up to 10 years available)

Earlier of 10 years or statute

Claims Payment 30 days of POL;No payment if any deficiency

30 days of POL;Pays non-deficient portion

30 days of POL;Pays non-deficient portion

Subrogation Carrier recovers full loss first

Insured receives 5% of recovery

Carrier recovers full loss first

Notice of Default“Default” is triggering event

Subcontract terms guide“Formal” notice of default issue (not a “threat)

Carrier notice periodWithin 180 (5) days of becoming “aware”Carriers have been soft in enforcing

Contesting of a defaultCarrier cannot contest“as determined by you (insured) or a legally binding authority”

REALITY

Proof of Loss - Defined

Direct Loss:•Completing scope•Correcting defects•Professional expenses•Insured’s costs

Indirect Loss:

•Not directly attributable to subcontract/PO

•LDs, acceleration, extended OH

“Written description and supporting evidence that document a claim is a covered loss and quantifies

the amount of the loss”

Proof of Loss - Administration

Indemnity policy – insured has burden of proof

Earlier of 10 years (generally) or statute

“Deficiency” in proof of lossMay or may not hold up entire claim30 days to cure deficiency

Interim proofs of loss

Documentation is the key!

Payment of ClaimsPayment within 30 days of satisfactory proof of loss

Interim proofs of loss paid les 5%

Subrogation & recoveryCarrier will pursue the subcontractor

10

QUESTIONS?Thank you for your time!