2007 international conference washington, d.c. ~ november 7-9, 2007 beyond all limits: eco/xpl and...

Washington, D.C. ~ November 7-9, 2007

2007 International 2007 International ConferenceConference

Beyond All Limits:Beyond All Limits:

ECO/XPL and How It Impacts Primary, Excess,

and Reinsurance Contracts

Beyond All LimitsBeyond All LimitsPanel MembersPanel Members

• MODERATOR: Adrienne Publicover, Partner Wilson Elser Moskowitz Edelman and Dicker, LLP

• Timothy Bolden, VP and Chief Compliance Officer AIG American General

• Dave De Berry, Vice PresidentHartford Financial Products

• Robert Dominiak, Vice PresidentTravelers Bond & Financial Products

• Michael J. Kuckelman, PartnerWarden Triplett Grier PA

• William McLaughlin, Senior Vice PresidentTransatlantic Reinsurance Company

OverviewOverview

• Punitive damages, fines & penalties

• Excess liability judgments

• How to underwrite ECO/XPL

• Adjusting claims in THIS market

• Dynamics of risk transfer

Punitive Damages, Fines, Punitive Damages, Fines, and Penaltiesand Penalties

State Farm v. Campbell

In 2003, this US Supreme Court expansion of Gore v. BMW was thought to be the answer to

runaway punitive damages

Is it so in 2007?

Background facts of Campbell-Automobile case

$50,000 liability policyBad injuries / damages

CampbellCampbell History History

• Jury: $2.6m compensatory and $145m punitive damages

• Trial Court: Reduced jury verdict to $1m compensatory and $25m punitive

• Utah Supreme Court: reinstated $145m punitive award

• US Supreme Court remanded as excessive• Utah Supreme Court on remand:

$9,018,785.75 (9:1 ratio)

Factors That Must Be Factors That Must Be Considered as a Result of Considered as a Result of

CampbellCampbell

1. Degree of reprehensibility of conduct

2. Disparity between actual harm and punitive award

3. Difference between the punitive award and civil penalties in comparable cases

Excess Liability JudgmentsExcess Liability Judgments

Oaks from Acorns: Claim Process

Claims operational reviews Situational awareness

“Special damage” claimants

Claimant communications

Geographical hotspots

Early access to claims counsel

Excess Liability JudgmentsExcess Liability Judgments

Oaks from Acorns: Litigation • Primary legal defense:

Mercenaries or patriots?

Discipline to assess

Communicate

E&O carrier or Reinsurer’s role in case resolution:

HINT: avoid having the first contact be at courthouse steps!

How to Underwrite How to Underwrite ECO/XPLECO/XPL

• Company Profile - write established, well managed, financially strong companies

• Product profile and states of operation

• Claims handling best practices used and audited regularly

• Litigation history

How to Underwrite How to Underwrite ECO/XPLECO/XPL

(cont’d)(cont’d)

• Appropriate retention levels

• Reinsurance treaty response integrated into program

• Scope of professional services appropriate

• Monitor legal trends

Adjusting ClaimsAdjusting Claims

Key Safeguards for Key Safeguards for All LinesAll Lines

• Clear thresholds (“red flags”) requiring supervisory intervention

• Formal training regarding Unfair Claims Practices Act

• Formal training regarding interpretation of insurance policies and training in the terms and conditions of the particular policies being adjusted

• Centralization of claims handling

Key Safeguards for Key Safeguards for All LinesAll Lines

(cont’d)(cont’d)

• Hierarchy of authority• Internal audit processes• Performance evaluations reward good-

faith claim handling results• Culture emphasizes customer friendly

service • Realistic claim inventory/adequate

staffing

Additional Key SafeguardsAdditional Key Safeguards

• 3rd Party Claims Training regarding scope of duty to

defend Denials require supervisory approval Investigation protocols Settlement protocols

Additional Key Additional Key SafeguardsSafeguards

(cont’d)(cont’d)

• Excess Lines Watch lists (identification of potential

large exposure claims) Protocols regarding bordereau reporting

Claims Handling - Claims Handling -

Best Practices ? Best Practices ?

When Things Go WrongWhen Things Go Wrong

• Claim gets “ugly”• Will this new risk be transferred or

shared?  Responsibilities:    - Insurance Company    - Professional Liability Carrier    - Reinsurer• Which responds first - E&O or

ECO/XPL?

Claims Department Claims Department BehaviorBehavior

• Formalized procedures and safeguards should be in place

• Impact of E&O polices and/or Reinsurance Treaties

The Future of The Future of Exemplary DamagesExemplary Damages

• Here to stay?

• Frequency & Severity

TakeawaysTakeaways

• Discipline starts at home• Communication is critical - up, down,

and sideways • Awareness - of trends, of claim

development, of handling and reporting protocols - is required in underwriting, claim handling, and excess/reinsurance levels

• Quality counts at every level

AudienceAudience

Q & AQ & A

Thank you to …Thank you to …

• Tim Bolden

• Dave De Berry

• Bob Dominiak

• Mike Kuckelman

• Bill McLaughlin

• Adrienne Publicover